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Why You Should Ditch Your Bonus Plan (Nov 2021)


Published in Dental Economics, Nov 2021

If you are faced with an under-motivated, stressed-out team, it sure seems tempting to think you can renew their spirits and increase your production by introducing a bonus plan.  And it seems to make logical sense – because people are motivated by money, aren’t they?  And heck, plenty of dental consultants and other dentists swear by their bonus models. So, what’s not to like about bonus plans?

Well, let’s slow down a bit and really examine bonus plans. Let’s look at whether they truly increase motivation and performance for the long term. And let’s look at an even more essential issue which is: are bonus plans based on production or collections, even ethical?

Here are my seven problems with bonus plans:

  1. The ethical problem is the most troubling. When you link an employee’s compensation to how much dentistry they produce or collect, you are potentially incentivizing your employees to push medical intervention to patients who could be treated more conservatively.  Think about how a patient would feel if she knew her hygienist was recommending veneers over bonding, not necessarily because it was the better treatment option, but because her paycheck would improve. Would you want to go to a doctor whose team viewed you as the means to get to a new pair of shoes? Ultimately, I don’t think it’s in the best interest of patients to work with a team who get a bonus through treatment plans.
  • Bonus plans based on collections (which is what most other consultants suggest) seem to make sense but the only employee on the team who actually collects is the front desk person. So – how would a dental assistant for instance, really influence collections? Sure- she can be extra nice to patients, but what specific, new behaviors can she do that would directly affect collections?
  • Whether they are based on production, collections or savings in payroll, many bonus plans are often too complex for the team to track by themselves. The team don’t know from one day to the next if they qualified for the bonus. So, it doesn’t lead to greater motivation, only confusion. Fueling that confusion is also a vagueness about what behaviors are really being rewarded. If I’m a hygiene assistant, for example, what exactly am I supposed to be doing differently to merit the bonus?
  • Partly due to this vagueness, bonus plans lead to more tension in the office.  You might have hoped that the bonus plan would knit the team together but what happens too frequently is increased resentment that one staff member or another doesn’t deserve the bonus because they didn’t exert as much energy as someone else. Or the team feels more cynical and demotivated because the bonus goal was too high and the staff can never reach it. This is one of the reasons bonus plans designed to build morale and motivation often backfire.
  • Or the opposite happens and the team makes bonus every month. I just read an article about a practice where employees can earn an extra $350 per month. That’s great for the employee but terrible for a dentist who needs to plan for cash flow.  If every employee earns hundreds of extra dollars per month, the dentist has no way of controlling employee costs. As a consultant who analyzes her client’s numbers every month, having huge, unpredictable payroll costs is not something I would recommend to any business owner.
  • But employees really value and appreciate the bonus money, don’t they? Nope, employees quickly view their bonuses as entitlements and yet also fail to account for the bonus money as part of their compensation. So, employees can still demand raises because they think they’re underpaid, without recognizing or appreciating how much they really earned.
  • Employees who are continually bribed to do things in the practice because they receive an incentive, are now trained not to take on any new tasks or responsibilities unless that incentive is attached. So, dentists can get into an absurd situation where employees demand payment for taking x-rays. Paying extra for things employees should be doing anyway, means you are devaluing intrinsic motivation in favor of extrinsic rewards. And this is going to be a big-time problem for long-term motivation.

What does the research say?

 If the whole purpose of implementing bonus plans is to increase team motivation, then we need to understand what the social scientists tell us about motivation.

Study after study, beginning in the 1940s, tells us that external rewards do not increase motivation; in fact, they decrease it.  Daniel Pink, in his seminal book “Drive” summarizes these studies.[1] “Rewards deliver a short-term boost just as a jolt of caffeine can keep you cranking for a few more hours. But the effect wears off and worse can reduce the person’s longer-term motivation to continue the project.”  And you want to know something else that will blow you away? Every study determined that the larger the reward, the worse the performance!

And let’s go back to my original point that bonus plans inadvertently encourage unethical behavior. Just think about all the companies in recent history who instituted bonus programs tied to performance. Wells Fargo instituted bonus plans that led to fraudulent bank accounts and over-charges for millions of customers. Sears had a bonus plan at its car service stations that led to a major scandal. And anyone remember, Enron? A bonus plan in the dental office can lead to the same behaviors of enriching oneself at the expense of the customer. Bonus plans do not increase motivation to do a good job; they increase motivation to win the reward.

Can you reward employees for a job well done? Yes, but the reward has to be unexpected and has to come after the behavior. It cannot be a transaction: “If you do this… I’ll give you something.” B.F. Skinner’s philosophy of behaviorism did indeed train dogs to salivate on command but your team are not dogs and this type of if/then reward structure only creates addiction to the reward and not to creative thinking or long-term motivation.

What if you already have a bonus plan?

If I’ve convinced you that you need to end your bonus plan, there is a way to do it that so that your employees feel that they’ve been treated fairly. Calculate the average amount each employee made from the bonus plan in the last year and incorporate that into their new base salary. This is a win for employees because they are now guaranteed that amount; it is a win for you because you can now predict payroll; and it is a win for the practice because you will now be able to look for healthier ways to motivate your team.

If not a bonus, how do you increase motivation?

I wish I could give you a short answer to this enduring question. But the bottom line is that the dentist has to create a practice environment where employees feel motivated by intrinsic rewards and by the fulfillment of their own values.

Generally, people are motivated when:

  • They believe in your mission
  • Align with your philosophy
  • Feel recognized for their contribution
  • Are able to do the things they are skilled at
  • Learn new skills
  • Have personal relationships with their co-workers

 All this is less sexy than a bonus plan, but ultimately it is the only thing that creates a learning organization where employees feel motivated to do the right things at the right times.

You absolutely must pay your employees fairly and well so that they can live in the community where you practice. Hoping a bonus plan will lead your employees to feel more loyal or motivated to your practice, will not get you that result.  What does work is a fair compensation system that is tied to the culture you want to create at your practice. What does work is finding what motivates each team member and creating more opportunities for that. What does work is acknowledging each team member’s contribution and linking that to the ultimate goal of serving patients. That is how you create a cohesive team committed to your practice.

[1] Pink, Daniel (2009) Drive: The Surprising Truth of About What Motivates Us, Riverhead Books.


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