Comparing Compensation Structures in a New Grad's Contract

Congratulations! You've made it through school, and now you actually get to start being paid for your hard work!!! Kind of unbelievable, isn't it? Well, believe it.

Option 1: Salary-only, aka "the safety net"

Pros

• There is a fixed amount of money paid to the doctor no matter what. So, a slow month does not equal a hit to your pocketbook.
• Knowing how much money will be coming in per month means being able to plan your finances accordingly. There is no guesswork involved, so you can feel more secure in your spending and saving habits.
• Just because there isn't a production based component of the contract doesn't mean that the company or practice may not give occasional bonuses or rewards for great work. They just aren't a guaranteed part of your contract.

Cons

• If not considered ahead of time, this structure can make it difficult for growth or raises down the road because you have signed an agreement to work for a certain set amount. Make sure that the requirements and expectations for a future raise are included, in writing, within your contract and agreed upon by both parties. Otherwise, you may end up five years down the road making the same salary as you did in year one.
• Busy months don't equal more compensation. Since there is not a production component within your contract, having a stellar month will not result in your paycheck reflecting that extra work. (Keep in mind, though, that this is balanced by not being negatively affected during slower months.)
• Sometimes, depending on individual work ethic, this form of income may not incite much professional development or motivation to work harder. It is up to you to make sure you don't become complacent just because you know your paycheck won't be affected by a slow clinic. A lackadaisical mentality will never pay off in the end, and it could cost you your job.

Option 2: Production-only, aka "you eat what you kill"

Pros

• Your earning potential is relatively unlimited. Any factor leading to an increase in the net profits of the practice can directly increase your salary.
• You have motivation to grow the practice. By knowing that your efforts and hard work have the potential to positively impact your paycheck, there is an increased level of personal investment in the day-to-day activities of the office. While money is definitely not the only thing that makes doctors want to have an efficient and professional practice, it can help keep you encouraged to be on the lookout for creative and new ways to see more patients, deliver better care, and expand your office's reach. This benefits both you and your practice.
• You control your fate. While for some, this may be a scary thought, for many, it is a welcomed challenge. Doctors often prefer to know that they can do very well for themselves if they work hard to keep improving their clinic and that they are responsible for their own success. Though the percentage of production reflected in your salary may be negotiated with the owning company, the final amount made is up to you and how hard you work each day.

Cons

• Planning finances can be difficult. Without knowing exactly what your paycheck will look like each month, it is somewhat challenging to be able to fully plan your expenses and discretionary income. After being in a position for a bit, though, most are able to roughly predict what to expect.
• This is the highest risk category. Slow months within the practice equal less compensation for you, and income can fluctuate drastically month-to-month.
• There are no traditional, dollar-value raises. All increase in income is tied to increase in profits. The only form of a "raise" would be to negotiate a higher percentage of production to be paid to the doctor or to increase exam fees if the doctor receives all exam charges.

Option 3: Combination compensation, aka "the best of both worlds"

Pros

• There is some built-in financial stability that comes from having a guaranteed base salary. No matter how slow the practice may be in a month, you will always know that at least X amount is coming with each paycheck. This takes some of the guesswork out of the equation and can help you know how to plan. There is less risk involved with this contract than with production-only types.
• Like production-only contracts, you will be rewarded for exceptional months. The more the practice brings in, the more you bring in.
• This arrangement helps motivate you to be an engaged and forward-thinking part of the practice team for the same reasons as the production-only contract does. The fire lit may be slightly less intense than the production-only version due to your safety net of a base salary, but this agreement will still help you to avoid the complacency sometimes seen in salary-only doctors.

Cons

• Typically the percentage of production paid in these types of contracts is smaller than production-only arrangements. This means that, when the practice is doing well, you won't see the same degree of boost in compensation as you would've if your entire paycheck was linked to profits.
• In slower months, you do have a risk of bringing home less than you would've if you were 100% salary.
• You may encounter a practice that does not want to give you a raise in base salary over time due to the possibility of your income growing through production. However, if you think of this before signing, you may be able to negotiate the terms of an increase into your contract.