Karen E. Felsted
CPA, MS, DVM, CVPM, CVA
Take Charge columnist Dr. Karen E. Felsted is the founder of PantheraT Veterinary Management Consulting. She spent three years as CEO of the National Commission on Veterinary Economic Issues.Read Articles Written by Karen E. Felsted
My most recent article, “Are You Paying Your Veterinarians Enough?” [bit.ly/vet-pay-TVB] discussed the salaries that associate veterinarians want and, more importantly, what they get in today’s market. I also addressed some of the issues that practice owners must be aware of when setting and updating compensation — for example, the need for a strong practice culture and how to support doctor productivity and justify the higher pay. This time, I’ll discuss the essential considerations for structuring DVM compensation models.
The building blocks of doctor compensation continue to be base pay/draws, bonuses (production or other) and fringe benefits. However, the specifics are changing in many veterinary hospitals. Practice owners apply the basics in different ways to keep compensation costs reasonable for the business and to attract, reward and retain the best team members.
Associate veterinarians typically are paid in one of three ways. According to “Compensation and Benefits, Ninth Edition,” published by AAHA Press:
- 36% of doctors receive straight salary or hourly wages. (Daily rates fall into this category.)
- 43% earn a salary or hourly pay plus a percentage of their production.
- 20% rely only on production.
There is no universally correct choice. While each hospital must determine what works best, management must consider the following:
- Is the compensation, no matter how it’s calculated, competitive in the current market?
- Is the amount of production generated by specific doctors reasonable compared to their compensation?
- Is the production model set up appropriately?
Local salary information is helpful but can be challenging to find. Be aware that published benchmarks telling you what and how associate veterinarians are paid can be outdated and not local enough.
I suggest talking to colleagues who hire veterinarians, looking at help-wanted ads in state and local veterinary medical association newsletters, reviewing postings on veterinarian job sites, and talking to recruiters. Your nearest college of veterinary medicine might know the starting salaries of recent graduates.
In addition, if you’re losing a doctor to another practice, conduct an exit interview to identify how you can make your hospital’s compensation and benefits more competitive.
When compensation includes a fixed component such as a salary, an hourly or daily rate, or base pay/draw, the practice should compare the production of each doctor to the compensation (not including fringe benefits).
In Example 1, Dr. Smith was paid a straight salary of $125,000 in 2022 and received typical benefits. Her personal production was $700,000.
Unless the local market rate of production pay is less than 20%, which is unlikely, Dr. Smith is underpaid. While she might not take issue with her pay, the practice is in a risky position.
Is 20% the appropriate number? Maybe not. As everyone knows, salaries are rising nationwide, and 21% or 22% might make a better comparison. For instance: The higher percentages in Example 2 aggravate the issue from Dr. Smith’s perspective. She would appear to be even more underpaid in the current market. So, what should be done in this situation? If the practice likes the doctor and wants her to stay, it’s time to think about a salary increase.
But what if Dr. Smith’s production is only $450,000? See Example 3.
Example 3 shows that Dr. Smith’s $125,000 pay might be more than her production warrants, no matter the percentage. What should you do then? Lowering an employee’s salary is always a recipe for disaster unless the goal is to get the person to quit immediately. A better option would be to focus on improving the doctor’s productivity.
Veterinary hospitals often like a production pay model because they think it shifts the responsibility for compensation to the doctors. However, many decisions made by the practice influence the ability of the doctors to produce, so the practice must do its part. Some of the factors include:
- The number of support staff members and their skill sets.
- The doctor’s ability to delegate to the support team.
- Who the support staff spends time supporting.
- The practice’s fee levels.
- Workflow efficiency.
- Marketing and promotional programs.
Another good strategy is to pay for continuing education in subjects that would help the doctor become more productive, such as technical training or communication skills.
Setting Up Production Pay
A production pay model has many moving parts, all of which must be considered regardless of whether you use it now, are thinking of switching to it or are trying to estimate the appropriate market salary. Choosing the production percentage can be tricky. In my experience, 19% to 21% of the combined service production and product sales has made sense historically. However, the percentage might need to be higher now due to market changes and associate DVM expectations.
Changes in direct costs and client buying habits have driven many practices to move to a split-rate production pay model. It requires more data tracking than a single-rate system but can be fairer to the practice and employees. The rates vary among practices. For example, some hospitals might pay:
- 20% for services.
- 10% for flea, tick and heartworm preventives and pet food.
- 0% for boarding and grooming.
Others might pay 23% for services and 5% for everything else for which a doctor is credited.
Typically, doctors receive production credit for all the services they perform and all the products purchased by their clients during a visit. Exclusions might include any work performed in the hospital by a mobile surgeon or a service billed by the practice but done elsewhere, such as an MRI. Doctors usually get credit for the initial purchase of medication or food but not necessarily for refills. Doctors generally don’t get credit for boarding and grooming revenue or the sale of over-the-counter products.
Veterinarians and practice leaders must realize that a perfect system is impossible. Sometimes, doctors are credited for things they don’t do, such as when a veterinary technician gives subcutaneous fluids to a cat. On the other hand, they sometimes aren’t credited for reviewing a chart or authorizing a prescription refill.
It works out as long as the compensation system is fair overall and results in competitive market pay.
Other issues that must be considered when determining percentages and credited revenue items include:
- What percentage is appropriate if a doctor doesn’t receive fringe benefits? Calculate the cost of the benefits given to other doctors in the practice and make sure the additional percentage doesn’t result in significantly higher pay.
- Is production calculated monthly, quarterly or at other times? The pay must be frequent enough that it acts as an incentive.
- How are production shortfalls treated? For example, what happens if the doctor isn’t producing enough to support the base salary? Must the DVM make up the amount before receiving another production pay bonus?
- How are services credited when multiple doctors share a patient? Generally, the doctor who does the work should get the credit instead of the one who recommends a service.
- What happens if the client doesn’t pay the bill? Credit policies usually are set by the practice, not the DVM, so doctors shouldn’t be held responsible for non-paying pet owners. However, if the doctor decides that payment is required at the time of service, the policy might differ.
- What if doctors make other valuable contributions to the practice besides production? Their compensation must reflect those activities.
Review the methodology used to determine compensation and benefits at least once a year. A salary methodology’s philosophical correctness won’t matter if your veterinarians can’t earn the same or more than they would at a typical practice in your area.
According to the most recent “Compensation and Benefits” guide, full-time associate veterinarians receive an average of 4.1 paid continuing education days annually.