bonus structure

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hey everyone,

I know this has been hashed out on here before, but I was wondering what people typically expect to get (gross) in bonus as an associate in year 2 of a contract.

I know the typical formula of 25-30 percent of 2-3x base salary.

i did not make any bonus year one which I believe is the norm, but it appears that I do have some say in changing the bonus structure for year 2.

My current bonus structure is 25% over 3x base salary but this seems barely attainable even in year 2, based on my last 6 months of returns (even though getting busier)

Does anyone have any experience with flat bonus of like 5 or 10 percent of all net receipts? Or maybe like 10-15 percent at 2x base? Should I expect some raise in base salary in year 2.

I want to be make the offer fair to both parties but I also want some bonus gaurunteed this year and the current system doesnt seem adequate.

3x base is high. No wonder you have a tough time reaching it. If you could get them to drop it to 2.5x, that would make a huge difference. Never heard of a flat bonus. You should definitely expect a raise in year 2, as I assume you're productivity is increasing.

Also never heard of a flat bonus.

Unless the practice has a high overhead, 25% of collection is low.

It's difficult to say whether the bonus structure is fair without knowing your
base salary. If you already have a high or high average base salary, you
may be getting paid appropriately even if you do not meet your bonus.

If your base salary is low, and you still can't meet bonus, you may not be busy
enough or the threshold is too high or there may be a discrepancy in the finances.

I assume you get a monthly financial report of your collections.
For a generalist, you should collect (not bill), on average, $100/patient encounter,
taking everything into account (lasers, surgeries, office visits, testing). Of course,
it may vary depending on where you live and cost of living (probably paid
more per encounter in CA than TX).

So, it's really impossible to answer your original question because there are
many factors to consider. Someone in the middle of nowhere USA may meet
their bonus in the first year, but someone in a saturated big city may not meet
their bonus for several years.

Originally Posted by guttata

Also never heard of a flat bonus.

Unless the practice has a high overhead, 25% of collection is low.

It's difficult to say whether the bonus structure is fair without knowing your
base salary. If you already have a high or high average base salary, you
may be getting paid appropriately even if you do not meet your bonus.

If your base salary is low, and you still can't meet bonus, you may not be busy
enough or the threshold is too high or there may be a discrepancy in the finances.

I assume you get a monthly financial report of your collections.
For a generalist, you should collect (not bill), on average, $100/patient encounter,
taking everything into account (lasers, surgeries, office visits, testing). Of course,
it may vary depending on where you live and cost of living (probably paid
more per encounter in CA than TX).

So, it's really impossible to answer your original question because there are
many factors to consider. Someone in the middle of nowhere USA may meet
their bonus in the first year, but someone in a saturated big city may not meet
their bonus for several years.

I see your point about the base, but I still contend 3x is too high a goal. If the base is high, the goal is most likely unreachable, even with a very busy practice. If the base is low, they are making far too much money off of you. Of course, we also don't know the buy-in plan. If the buy-in is below average, they may be trying to make more off of you as an associate to compensate. If the buy-in is average or high, sounds like a bad deal.

Are optical collections usually included in the total collections or separated out? Is it common to receive a portion of optical collections if separated out?

Originally Posted by odieoh

Are optical collections usually included in the total collections or separated out? Is it common to receive a portion of optical collections if separated out?

Varies. In my practice, for instance, they are separated out. Associates don't see (or get credit for) optical sales until partnership.

Originally Posted by Visionary

Varies. In my practice, for instance, they are separated out. Associates don't see (or get credit for) optical sales until partnership.

Thanks. I have a few more questions about contract structure if anyone has some thoughts, my contract is up for re-negotiation and I"m trying to decide if I'm getting a fair deal.

Details:
-I'll be starting my 4th year of practice
-I'm at a practice in a rural/fairly isolated, less desirable area
-Base salary is average for what I've seen described for starting ophthalmologists
-Production bonus is 15% of collections above 3x base, and then 27% above roughly 3.5x base. I also get 6% of my optical collections over 50k.
-There is a profit sharing component also, last year amounted to about 7k
-Collections for this year are projected to 700-750k (optical not included).
-I've had the option to buy in for a while now, but wife and I are unsure about the area and do not want to commit to a buy in yet, so that is essentially outside this discussion.

Bottom line is, its hard for me to say if I'm getting a fair deal. I see that often you get a premium if you're willing to go to a rural practice and I certainly don't think I"m getting that. The productivity bonus seems on the low side percentage-wise, but then I do get some optical. I don't get professional society dues.

I don't think I'm getting royally screwed, but I think it would be reasonable to ask to improve the productivity portion a bit. Also thinking about asking for professional dues.

Any thoughts?

Originally Posted by odieoh

Thanks. I have a few more questions about contract structure if anyone has some thoughts, my contract is up for re-negotiation and I"m trying to decide if I'm getting a fair deal.

Details:
-I'll be starting my 4th year of practice
-I'm at a practice in a rural/fairly isolated, less desirable area
-Base salary is average for what I've seen described for starting ophthalmologists
-Production bonus is 15% of collections above 3x base, and then 27% above roughly 3.5x base. I also get 6% of my optical collections over 50k.
-There is a profit sharing component also, last year amounted to about 7k
-Collections for this year are projected to 700-750k (optical not included).
-I've had the option to buy in for a while now, but wife and I are unsure about the area and do not want to commit to a buy in yet, so that is essentially outside this discussion.

Bottom line is, its hard for me to say if I'm getting a fair deal. I see that often you get a premium if you're willing to go to a rural practice and I certainly don't think I"m getting that. The productivity bonus seems on the low side percentage-wise, but then I do get some optical. I don't get professional society dues.

I don't think I'm getting royally screwed, but I think it would be reasonable to ask to improve the productivity portion a bit. Also thinking about asking for professional dues.

Any thoughts?

Doesn't sound too bad, but could be improved. If I put dummy numbers into what you provided (optical not included):

Base: $125,000
3x: $375,000
3.5x: $437,500
Total collections: $750,000
Bonus: $93,750
Total pay: $218,750

A partner, assuming 60% overhead, would clear about $300,000 for the same collections. That's a difference of about $80,000. Of course, you need to take profit sharing and other perks out of that, because as a partner, you cover all of that yourself. Is your malpractice covered? Pretty common. Disability? Health? Less common.

One thing I would ask for is to make it 27% across the board. You are consistently above the goal at this point. You lose about $7,500 with the 15% bit. I think society dues are reasonable, as well. How about CME allowance? That would push you up gently.

Are you planning to partner up at some point? You'll never make as much as an associate, as you will as a partner.

Sent from my Droid Incredible on SDN Mobile

Yes my malpractice is covered, and I get health insurance although my wife does not. No disability.

Yeah, the 27% straight up was what I was thinking, along with the professional dues. I do get a few other benefits, so my total package is a bit more than what you estimated (base is higher as well).

I would love to be partner. . . somewhere. As I said, I have the option here, I'm just not sure I want to spend the rest of my life here. Buying in is so permanent. So, I've elected not to so far but I need to decide soon because if I'm going to relocate probably the sooner the better.

Overall, I think my package is reasonable, but not necessarily generous, considering its in a fairly undesirable area.

Thanks for the input!

Yeah, that sounds like a good course of action. You should try and make a decision about things fairly soon. I've heard that starting over on a partnership track somewhere else is painful. You typically don't get credit for the time you've already put into the first practice. Being a lifetime associate isn't bad, but you're missing out on a lot of potential revenue.

You need to decide what to do as you are losing some serious cash as an associate, and also time. If you haven't decided you want to stay in a place in four years when will you know? If you look for another job you will be starting over, building a patient base, a referral base, and trust from your partners. So you are looking at a minimum 2-3 yrs after joining another group.

If you look for another job also need to consider real estate and also ASC options as they can boost your income a significant amount.

Lastly, as a comparison, our associates have a base of 150K, 20% bonus over 3X salary (including optical). Malpractice, medical, specialty society dues, licensure and board recert paid by company.

Originally Posted by Zorro12

You need to decide what to do as you are losing some serious cash as an associate, and also time. If you haven't decided you want to stay in a place in four years when will you know? If you look for another job you will be starting over, building a patient base, a referral base, and trust from your partners. So you are looking at a minimum 2-3 yrs after joining another group.

If you look for another job also need to consider real estate and also ASC options as they can boost your income a significant amount.

Lastly, as a comparison, our associates have a base of 150K, 20% bonus over 3X salary (including optical). Malpractice, medical, specialty society dues, licensure and board recert paid by company.

Thanks, I know I'm kind of shooting myself in the foot by being indecisive, on the other hand I know I'm not going to be stuck somewhere where I'm unhappy.

Does your practice do some sort of matching for retirement plans? I'm wondering if that's a fairly common benefit too.

Originally Posted by odieoh

Thanks, I know I'm kind of shooting myself in the foot by being indecisive, on the other hand I know I'm not going to be stuck somewhere where I'm unhappy.

Does your practice do some sort of matching for retirement plans? I'm wondering if that's a fairly common benefit too.

I don't know about common, but mine does. I'd venture to say that the larger the practice, the more such benefits.

20% over 3x the base is low. Standard numbers across the board are 30% of collection over 2.5 the base. This is assuming a practice is running a 60% overhead.

If you are seeing less than those numbers, you should ask why. Might be reasonable but sometimes, the practice is taking too much in profits.

And regarding benefits....every practice is different. Not real standard in that realm.

@odieoh: In a fourth year, I typically see physicians earning a straight percentage of collections. 30%-35% is more normal, unless the practice runs that high of an overhead.

So, is it a consensus that if you work as an associate for 2-3 years and then move on somewhere else, you start over at minimal starting salary/bonus/etc.

Is there any way for new employer to know how well you did at former empoyment? Do you look like a less or more desirable candidate for a position?

I could see someone wanting a more experienced surgeon with good reputation (as opposed to straight out of residency) but also could see someone who left another job as a flight risk.

Amyone have any insight into this. I am in somewhat similar situation as odieoh but only starting my second year as associate and not sure about wanting to stay at current job/city longterm

Originally Posted by odieoh

Thanks.
-Production bonus is 15% of collections above 3x base, and then 27% above roughly 3.5x base. I also get 6% of my optical collections over 50k.
-There is a profit sharing component also, last year amounted to about 7k
-Collections for this year are projected to 700-750k (optical not included).
. . .
Any thoughts?

From the appearances, that doesn't seem so great, unless you are getting a lot of perks that don't appear on the compensation side (i.e., huge vacation and meeting allowances, company car, 401K matching, pension plan, big advertising budget, expense account, etc.)

Opticals are usually profitable. 6% is well below the percentage typically paid to optometry employees, FWIW.

So, where does the "profit sharing" come from? at threshhold of 3x base--which is theft, IMO--it is coming from you. That is what, less than 1% of your gross collections?

You are paying for a buy-in without getting the equity at present. I suggest you either buy in or consider setting up somewhere else you would rather work and get a larger share of your earnings.

Originally Posted by orbitsurgMD

From the appearances, that doesn't seem so great, unless you are getting a lot of perks that don't appear on the compensation side (i.e., huge vacation and meeting allowances, company car, 401K matching, pension plan, big advertising budget, expense account, etc.)

Opticals are usually profitable. 6% is well below the percentage typically paid to optometry employees, FWIW.

So, where does the "profit sharing" come from? at threshhold of 3x base--which is theft, IMO--it is coming from you. That is what, less than 1% of your gross collections?

You are paying for a buy-in without getting the equity at present. I suggest you either buy in or consider setting up somewhere else you would rather work and get a larger share of your earnings.

Thanks for your thoughts. My situation is a little complicated, and for the time being it makes sense for me to stay here, where I've build up a decent patient base, without making the commitment to buy in. My contract also does have some extra perks-- main one being that I get housing for free.

So I just finished renegotiating my contract, and let me frame it a different way to see if you guys think its fair. Instead of focusing on where each chunk of money comes from, let me just lay out the big picture of what I will bring in as collections, and what I will take home (take home as far as it showing up on my paycheck, not "takehome pay"). I think its reasonable.

Basically, I'm going to project myself to bring in ~850k in medical collections this coming year, and maybe ~ 250k optical. That's about a 15% increase over this year, which seems to be about the growth curve I'm on. With my new contract I will be paid about 260k, plus I get the housing which has a value of somewhere in the range of 20-25k. I did get the professional dues thrown in, and I get health insurance. The practice runs at about 70% overhead. From what I can tell with this new setup, it seems like a decent deal. Any thoughts to the contrary?

Originally Posted by orbitsurgMD

Opticals are usually profitable. 6% is well below the percentage typically paid to optometry employees, FWIW.

So, where does the "profit sharing" come from? at threshhold of 3x base--which is theft, IMO--it is coming from you. That is what, less than 1% of your gross collections?

.

As far as the optical goes, what is considered a good profit margin? I'm told ours runs about 10%.

The number I quoted for profit sharing actually included the amount the practice matches for my retirement contribution--ie the bulk of the 7k I quoted was my "match," and the rest was the "profit sharing." Its something all the employees receive, and I think I get the same as the techs/receptionists/everyone who has worked there for over 2-3 years. Which is fine, it wasn't pitched to me as if the profit sharing portion was going to be some huge part of my compensation.

Optical profits depend on the mix of sales. If they are doing huge contact lens sales but only marginal eyeglass sales on low-dollar vision plans, profits may be lower than if they are doing a good volume of premium eyeglass sales, hard contact lens orders and prescription and non prescription sunglass sales. i have seen small but upscale opticals with practice-only clientele on a 500sf footprint do 35-40K/mo in sales with two employees. They did value-added work like edging and tinting. 15% was the standard paid to docs on gross sales. They were still profitable after the commissions. Typical markups on frames are 200-300%. Ditto for lenses.

70% overhead is a lot. It depends on what is being included in that figure to know whether it is excessive or not. Some practices bury partner salaries, medical director salaries, pension plan contributions, expensive perks like car leases and the like in those numbers, so they don't always represent a category that makes for a reliable "apples-to-apples" comparison to other practices.

@eyesfortexas: leaving a practice is the norm...especially in the first two years. Won't be looked down upon if for the right reasons. If you were "let go but don't know why", it will probably raise some red flags.

And with experience you will see an increase in guarantee salaries. But as a practicing physician, you really will not need it after the first year.

Originally Posted by odieoh

Thanks for your thoughts. My situation is a little complicated, and for the time being it makes sense for me to stay here, where I've build up a decent patient base, without making the commitment to buy in. My contract also does have some extra perks-- main one being that I get housing for free.

So I just finished renegotiating my contract, and let me frame it a different way to see if you guys think its fair. Instead of focusing on where each chunk of money comes from, let me just lay out the big picture of what I will bring in as collections, and what I will take home (take home as far as it showing up on my paycheck, not "takehome pay"). I think its reasonable.

Basically, I'm going to project myself to bring in ~850k in medical collections this coming year, and maybe ~ 250k optical. That's about a 15% increase over this year, which seems to be about the growth curve I'm on. With my new contract I will be paid about 260k, plus I get the housing which has a value of somewhere in the range of 20-25k. I did get the professional dues thrown in, and I get health insurance. The practice runs at about 70% overhead. From what I can tell with this new setup, it seems like a decent deal. Any thoughts to the contrary?

I think you should just hold out for 4 more years until I can take over those reigns. How rural are we talking here? Rural enough for me to have 40 acres to myself?

Good luck with deciding to stay or go long term. Make sure that your family is happy where they are before you decide to stay for the increased profits!

Don't assume the reins will be reserved for you to take. Some colleagues I have known have counted on just that event only to discover that the retiring doctor, or doctor's widow is putting the practice up for sale to the highest bidder . . . with all the employed professionals still bound to non-competes.

Originally Posted by orbitsurgMD

Don't assume the reins will be reserved for you to take. Some colleagues I have known have counted on just that event only to discover that the retiring doctor, or doctor's widow is putting the practice up for sale to the highest bidder . . . with all the employed professionals still bound to non-competes.

I'm not sure a court would uphold a non-compete clause in that case. From what my lawyer friends say they are relatively hard to litigate on anyway and you'd think this would make it even harder. However don't trust that because IANAL, for sure.

Originally Posted by mydodger

I'm not sure a court would uphold a non-compete clause in that case. From what my lawyer friends say they are relatively hard to litigate on anyway and you'd think this would make it even harder. However don't trust that because IANAL, for sure.

A lot depends on the state in which the contract was issued and the courts where the dispute is arbitrated or litigated. Usually an employer would seek a restraining order on a doctor intent on practicing against the terms of a non-compete, using the contract as the justification. Litigation would usually follow from that, seeking damages, during which time the doctor might be enjoined by court order from practicing in the disputed area. Unless he could afford not to be employed pending the (hoped-for) successful challenge of the clause, he is probably going to have to work somewhere else anyway. And then there is the cost of the legal process, which even if successful may void any financial gains, and even result in a loss. And getting the other side to pay costs is not as easy as it would seem.

Some states routinely toss these clauses in the garbage, so employers there don't prosecute them. Other states enforce them, and still others, my state among them, allow judges to re-draw terms of a non-compete to less-restrictive but still enforceable limits.

They are not that hard to litigate, but some lawyers might advise a client that has drawn unreasonable limits in a non-compete to not press the issue for fear of having the entire clause nullified by a judge. It is never good to take your client to court and have that happen.

Originally Posted by eyesfortexas

So, is it a consensus that if you work as an associate for 2-3 years and then move on somewhere else, you start over at minimal starting salary/bonus/etc.

Is there any way for new employer to know how well you did at former empoyment? Do you look like a less or more desirable candidate for a position?

I could see someone wanting a more experienced surgeon with good reputation (as opposed to straight out of residency) but also could see someone who left another job as a flight risk.

Amyone have any insight into this. I am in somewhat similar situation as odieoh but only starting my second year as associate and not sure about wanting to stay at current job/city longterm

Unless you are walking into a ready-made practice, you will have to build it up. I wouldn't expect someone to subsidize you (i.e., pay you a higher base salary than you're practice is worth) just because you have already been in practice a few years somewhere else. You can pretty much count on starting over.

Another resident about to head out into the world. I was wondering if I could get some thoughts on my offer, as I'm not the best with this kind of stuff. Im in a fortunate situation, basically joining a practice where I will be replacing a doctor who just retired and inheriting those patients. I'll be doing general ophtho including glaucoma surgery and cataract surgery.

3 year contract
Base: $175k
Bonus structure: 30% of each net collected dollar (ie as it was explained to me with an easy number, if i gross 1 million dollars, i will take home 300,000 (my base 175 + 125 in bonus); also 5% of all optical sales attributable to me.
Includes health, dental, life (15k) and malpractice
Chance for equity purchases after 2 years including the practice and surgery center

Originally Posted by cubsrule4e

Another resident about to head out into the world. I was wondering if I could get some thoughts on my offer, as I'm not the best with this kind of stuff. Im in a fortunate situation, basically joining a practice where I will be replacing a doctor who just retired and inheriting those patients. I'll be doing general ophtho including glaucoma surgery and cataract surgery.

3 year contract
Base: $175k
Bonus structure: 30% of each net collected dollar (ie as it was explained to me with an easy number, if i gross 1 million dollars, i will take home 300,000 (my base 175 + 125 in bonus); also 5% of all optical sales attributable to me.
Includes health, dental, life (15k) and malpractice
Chance for equity purchases after 2 years including the practice and surgery center

Some advice
1. Three years is a long time - are you sure you want to commit to a long term contract? Do you know the partners personally? If not, I would be hesitant to sign a 3 year contract.

2. Bonus structure could be low, depending on practice overhead. Basically, you are collecting 30% of any money over 583k (3.33x your salary). I have seen bonus offers from 2.5 to 3.5x salary, usually 30%.

3. Once you are serious about the contract, do yourself a favor and hire a good healthcare contract lawyer. It is well worth the small dollar amount for your peace of mind and security. You need to keep the best case scenario (buy-in) and worst case scenario (being fired) in mind, and have the contingencies or terms clarified for these situations (as best as you can).

4. What kind of malpractice insurance and who pays the tail (if necessary)?

Your compensation is basically the base or 30% of collections, whichever is greater. Not bad....might be able to get more.

3 Years is a long contract but you have the option to buy-in after two, right? That is really the way to look at the agreement. If you don't buy-in, you will probably not be there for that 3rd year.

Originally Posted by guttata

Some advice
1. Three years is a long time - are you sure you want to commit to a long term contract? Do you know the partners personally? If not, I would be hesitant to sign a 3 year contract.

2. Bonus structure could be low, depending on practice overhead. Basically, you are collecting 30% of any money over 583k (3.33x your salary). I have seen bonus offers from 2.5 to 3.5x salary, usually 30%.

3. Once you are serious about the contract, do yourself a favor and hire a good healthcare contract lawyer. It is well worth the small dollar amount for your peace of mind and security. You need to keep the best case scenario (buy-in) and worst case scenario (being fired) in mind, and have the contingencies or terms clarified for these situations (as best as you can).

4. What kind of malpractice insurance and who pays the tail (if necessary)?

Ive been in discussion with the group for over a year now and have met with the partners and office manager on multiple occasions, and kept in touch through email on a monthly basis, so I feel pretty comfortable from that aspect. Residency was 3 years, and fairly miserable, but went by quickly. Looking at it from that perspective, it doesnt seem like that long of a time - do you think I'd be better off with a 2 year contract? I'm where I want to be in terms of location, so even if it wasnt working out, I wouldnt be looking to get out of town. There is no non compete clause. Is it typical to sign a 3 year contract with a stationary base salary, or does the base usually go up each year? If it stays the same over the course of the contract, should I ask for a higher base to start out with?

Overhead is around 60%. Malpractice is covered through LA Patient's Compensation Fund. He didnt specifically go into whether that includes tail. Im having a lawyer look it over with me tomorrow and im sure thats something I will discuss with him, I just wanted the perspective from some actual doctors who have done this. Overall does it look like a fair deal?

Originally Posted by Bgladney

Your compensation is basically the base or 30% of collections, whichever is greater. Not bad....might be able to get more.

3 Years is a long contract but you have the option to buy-in after two, right? That is really the way to look at the agreement. If you don't buy-in, you will probably not be there for that 3rd year.

Yes, buy-in is available after 2. They would offer equity shares on the rental assets (the clinic building), the ASC, and the practice itself. They also have satellite clinics set up, one of which I will be taking over, and also have offered after partnership buy in to allow me to purchase that satellite practice, while still being under their management. So as far as the buy in prospects, it appears fairly lucrative.

As I read it, even if you don't buy-in, you still have to work there the third year. I think your base is fine and if you are stepping into a busy practice, you will probably reach your bonus in the first year (making your base salary unimportant). If you are
not going to be busy, you want a higher guaranteed salary. But, 175k is a good starting point.

Three years can be a long time, especially if you do not mesh with your partners. Until you are practicing with them, there is no way to predict potential conflict. Personally, I'd like to have more flexibility. If you can buy in after 2 years, why not try to negotiate a two year contract?

Overall, it looks fair, but I wouldn't placed too much emphasis on the initial salary. It is difficult to ignore compensation - I was guilty of doing the same, looking at the initial salary (at times) rather than the big picture.

Long term outlook (partnership), potential partnership income, practice philosophy, etc are more important factors. I would want to know how many associates became partners (and if not, why did the associates leave). I would want to know if the practice has a reputation of being ethical. I would want to know if my practice style matches that of the practice.

I hope others can chime in.

Originally Posted by cubsrule4e

Yes, buy-in is available after 2. They would offer equity shares on the rental assets (the clinic building), the ASC, and the practice itself. They also have satellite clinics set up, one of which I will be taking over, and also have offered after partnership buy in to allow me to purchase that satellite practice, while still being under their management. So as far as the buy in prospects, it appears fairly lucrative.

Another thing to think about: what does "buy-in available" really mean?

Just because your contract says that it is "available", doesn't mean your Employer has any obligation to offer it to you. As guttata mentioned, it is better to look at past associates who have become partner as a better gauge of whether partnership will happen for you.

If an employer has never taken on a business partner before, then it is more unlikely that he would take on one. As a business owner myself, I understand this perspective. It is difficult to share a business with someone who has not "bled and sweat" (i.e. taken the risk) like us entrepreneurs. Unless of course, if offering shares of the business is better overall (e.g. entices a valuable associate to stay) for the company and its principal owners.

If you are going to become a partner after the 2nd year, why is there a 3rd? When you buy-in, you will be under the terms of partnership and the partnership buy-in agreement.

That 3rd year raises a red flag to me. As OphthoQuestions said...what does "available mean"?

I recommend that if a practice is looking for someone to become a partner after the 2nd year, the buy-in conversations need to start at 18 months.

How much notice must you give if you decide to leave?

Thanks for the responses. I brought up those questions with the lawyer this morning and will get some more detailed answers when I meet with the potential employer later today.

How would you calculate the breakeven point for a practice in hiring an associate?

If at all possible I'd like to maximize my bonus, as anyone would. But I would need to know the amount of gross collections at which the practice would breakeven on the hire to better negotiate this.

For instance, lets say a practice has a 55% overhead, and they hire an associate at a $150K salary The new associate has to generate $334K in gross collections for the practice to make $150K. So, any collections above $334K should be pure profit for the practice, right? (45% of the collections above $334K anyway, if no bonus for the associate). So wouldn't this be a good place to start for negotiations regarding bonus structure? That way the practice is guaranteed not to lose money, and both associate and the practice are rewarded for increased productivity (hopefully mostly the associate though!). If the bonus is based on 2x base salary, I could see why the % of bonus should be less to ensure that the practice doesn't lose money. But if the bonus only kicks in after the practice breaks even on the hire, couldn't the associate ask for a much higher bonus? Like 40% or maybe even a little more, since the practice will make money off the associate at any bonus level <45%?

And because of shared resources and sunk costs, would the addition of an associate actually automatically lower the overhead anyway, further ensuring that the deal is profitable for the practice?

Let me know if I am grossly oversimplifying this or if I am just way off!

Originally Posted by huntnfish

How would you calculate the breakeven point for a practice in hiring an associate?

If at all possible I'd like to maximize my bonus, as anyone would. But I would need to know the amount of gross collections at which the practice would breakeven on the hire to better negotiate this.

For instance, lets say a practice has a 55% overhead, and they hire an associate at a $150K salary The new associate has to generate $334K in gross collections for the practice to make $150K. So, any collections above $334K should be pure profit for the practice, right? (45% of the collections above $334K anyway, if no bonus for the associate). So wouldn't this be a good place to start for negotiations regarding bonus structure? That way the practice is guaranteed not to lose money, and both associate and the practice are rewarded for increased productivity (hopefully mostly the associate though!). If the bonus is based on 2x base salary, I could see why the % of bonus should be less to ensure that the practice doesn't lose money. But if the bonus only kicks in after the practice breaks even on the hire, couldn't the associate ask for a much higher bonus? Like 40% or maybe even a little more, since the practice will make money off the associate at any bonus level <45%?

And because of shared resources and sunk costs, would the addition of an associate actually automatically lower the overhead anyway, further ensuring that the deal is profitable for the practice?

Let me know if I am grossly oversimplifying this or if I am just way off!

It's a little complicated to calculate before the fact. I wouldn't necessarily say that adding an associate lowers the overhead, but it's safe to say that it changes the overhead, making the kind of calculation you want to do difficult.

It would really depend on the details of the particular practice. Is the new associate replacing someone or just being added? Are new staff being hired because of the new associate coming? Etc etc etc.

Yeah, I figured I was oversimplifying it. But I suppose it might be closer to accurate if the associate would be replacing a very busy partner, the building and office space would be unchanged, and there would be either no or minimal additional staff required (depending on if the partner still works part-time vs. fully retires).

I wonder how much the practice would be turned off by potential associate negotiating like that...though it does show motivation to be productive since the focus is on the bonus and not the base, I would think

Originally Posted by huntnfish

How would you calculate the breakeven point for a practice in hiring an associate?

If at all possible I'd like to maximize my bonus, as anyone would. But I would need to know the amount of gross collections at which the practice would breakeven on the hire to better negotiate this.

For instance, lets say a practice has a 55% overhead, and they hire an associate at a $150K salary The new associate has to generate $334K in gross collections for the practice to make $150K. So, any collections above $334K should be pure profit for the practice, right? (45% of the collections above $334K anyway, if no bonus for the associate). So wouldn't this be a good place to start for negotiations regarding bonus structure? That way the practice is guaranteed not to lose money, and both associate and the practice are rewarded for increased productivity (hopefully mostly the associate though!). If the bonus is based on 2x base salary, I could see why the % of bonus should be less to ensure that the practice doesn't lose money. But if the bonus only kicks in after the practice breaks even on the hire, couldn't the associate ask for a much higher bonus? Like 40% or maybe even a little more, since the practice will make money off the associate at any bonus level <45%?

And because of shared resources and sunk costs, would the addition of an associate actually automatically lower the overhead anyway, further ensuring that the deal is profitable for the practice?

Let me know if I am grossly oversimplifying this or if I am just way off!

Generally speaking, it is difficult to obtain a bonus in the 40s unless you are purely production based. While the practice overhead may be 55%, your overhead as a new employee may be much higher, since you will be seeing fewer patients and will undoubtedly, be less efficient than a more senior partner. Also, take into account any marketing, initial licensing fees, and possible moving/sign-on reimbursement.

Unless you have successfully started a practice on your own, you will not realize the effort, time commitment, periods of despair and pain the founders may have experienced. IMO, this experience and resulting stability is worth making some money off (but not fleecing) a new associate.

Originally Posted by cubsrule4e

Ive been in discussion with the group for over a year now and have met with the partners and office manager on multiple occasions, and kept in touch through email on a monthly basis, so I feel pretty comfortable from that aspect. Residency was 3 years, and fairly miserable, but went by quickly. Looking at it from that perspective, it doesnt seem like that long of a time - do you think I'd be better off with a 2 year contract? I'm where I want to be in terms of location, so even if it wasnt working out, I wouldnt be looking to get out of town. There is no non compete clause. Is it typical to sign a 3 year contract with a stationary base salary, or does the base usually go up each year? If it stays the same over the course of the contract, should I ask for a higher base to start out with?

Overhead is around 60%. Malpractice is covered through LA Patient's Compensation Fund. He didnt specifically go into whether that includes tail. Im having a lawyer look it over with me tomorrow and im sure thats something I will discuss with him, I just wanted the perspective from some actual doctors who have done this. Overall does it look like a fair deal?

So you're getting 30% of collections with a guaranteed base of 175? that sounds pretty good! You can probably negotiate the contract to 2 years if you're concerned.

huntnfish - You are exactly right. This is how it should be calculated. The overhead of the practice will slightly decrease (fixed costs will go down with the addition but more staff will temper that decrease).

The normal bonus % is 30% of collections. With your example, 35% might be reasonable. The practice is due a return on investment...typically 10-15%. Most practices are running a 60-65% overhead, making the 40% unreasonable.