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A Better Process for Managing Staff Increases

by | Oct 26, 2024

With all the wage inflation optometry practices have experienced over the past several years, many are looking for a better way to manage salary increases. Today I had a call with a practice owner who was getting advice that closely mirrors how our parent company, IDOC handles salary increases. 

But First, the Traditional Way 

A traditional way to manage salary increases is to use the inflation rate to offer Cost of Living Adjustments (COLA), often following Social Security’s adjustments. The challenge of this approach is that increases are as dependent on tenure as they are on performance. Apart from COLA, salary increases may also occur when a team member takes on new and higher responsibilities. 

It is not a good idea to only offer increases when teammates complain or ask, acting reactively out of fear of losing people. Instead, we recommend:  

A Merit Approach to Wage Increases 

A rigorous, proactive approach to salary planning rests on four pillars: 

  1. Thorough and clear job descriptions. 
  2. Regularly benchmarked wages. 
  3. Transparent and fair performance reviews 
  4. A budgeted increase in compensation allocated according to merit.

A quick disclaimer before you read further: I know most practices reading this are small businesses. What follows are typically best practices for mid-sized and large businesses. I’m aware that finding time to implement these strategies will be a challenge for many practices. However, if you commit to these practices, you can vastly improve your ability to attract good employees and keep them. 

1. Job Descriptions 

Job descriptions are an anchor for proactively and fairly paying your team. If you cannot accurately describe and summarize the work a given employee does, how can you calculate fair compensation? 

Set an annual reminder to review and update your team’s job descriptions. As they take on more or different responsibilities, capture it in writing. I’ve found there’s a push-pull dynamic in job descriptions, and you’re better served pushing. 

In this scenario, pushing means drafting job descriptions based on what your practice needs and basing hiring decisions and compensation on those needs. Being clear on business needs can also motivate your more ambitious employees by “mapping the path” for them to contribute at a higher level. 

On the other hand, pulling means letting your team shape their roles based on their skills and passions. The risk of this approach is that an employee’s preferences may not align with the practice’s goals and needs. But when they do match up, it’s valuable to allow team members to work in areas that fit their passions and skills, as they often go hand in hand. 

2. Benchmark Wages 

If you’re tired of employees repeatedly asking for raises, this could be the key to making your life easier. Benchmarking wages is a rhythm and discipline. It takes commitment but will bear great fruit. 

Essentially, the task here is to take your clear and complete job descriptions and research the wage ranges for those roles in private optometry practices in your region. While this isn’t always simple, here are a couple of sources to consider: 

  1. Online sources like Glassdoor or Payscale. 
  2. Mineral (available through IDOC membership or Gusto Payroll and maybe others). 
  3. Local databases that may accessible through your Chamber of Commerce. 

Here’s the beauty of benchmarking wages: any time a team member asks (and ideally, you communicate this regularly) for a raise, you can assure them that you’re regularly reviewing the local fair market wages for their role. And hopefully, you can reassure them that they’re on the high end or maybe even above the norms.

This approach effectively replaces traditional Cost of Living Adjustments. If you know the wage range employees can expect from other employers in your area, your year-to-year discussion about their pay becomes much simpler. 

If an employee’s salary is still within that range, they shouldn’t expect a significant pay increase by changing jobs. If they’ve fallen behind, your adjustment will be based on the current going rate for their position in your practice. This strategy can prevent long-term salary creep because it doesn’t guarantee a raise every year solely due to inflation. 

On the flip side, if a team member’s wages are above the range for their role, either freeze wages with assurances that they’re already well paid or implement a variable compensation system (a bonus) so they can earn more without increasing their base wages. 

3. Performance Reviews 

The third pillar is performance reviews. Remember, wage increases should be tied to either assuming more responsibility (refer to those job descriptions!) or performance, documented through performance reviews. 

A common way to structure performance reviews is to use a 9-Box framework to measure potential and performance. The basic idea is you rate employees’ performance across two axes, evaluating their performance as below, at, or above average. At IDOC, we add a unique twist by focusing our axes on “what you did” (deliverables) and “how you did them” (soft skills that undergird culture). 

However you approach it, having a predictable, documented process for reviewing employees can help sharpen their focus and provide transparency in how you allocate increases (because it’s safe to assume your team talks about their compensation). Performance reviews become a way to allocate wage increases based on your next year’s salary budget.

4. Budgeted Increase 

Finally, you should set a budget for wage increases for current staff, separate from your budget for new hires. One key point about staff wages: within reason, it is usually more cost-effective to increase your current team’s wages than to bring in new people.  

Think about it, an average new employee earning $19 per hour costs around $43,000 per year, with taxes and benefits. It would take a team of 21 people all getting a $1/hr raise to come close to matching the cost of adding an employee. Productive, good teams can stay small and be paid well. 

When it comes to merit increases, there are a couple of approaches you might take: 

  1. Use the revenue growth percent as the increase in non-OD staff wages against the prior year. You might also set the merit increase below absolute growth but use growth as a ceiling for the merit increase. 
  2. Set a target percent of current revenues for the merit increase. In other words, if your non-OD payroll was 25% of revenue going into 2024, and revenue grows from $1MM to $1.1MM, the merit increase pool is $25,000 ($100,000 in revenue growth times 25%). 

Good Data Undergirds Financial Decision Making 

In all of this, the role of Books & Benchmarks is to benchmark your practice’s payroll against practices across the country. We don’t handle benchmarking compensation, creating job descriptions, or rating employees. However, our benchmarking data on staff costs and productivity can help you quickly assess if you need to adjust your employee compensation or if your practice is in good shape. 

For accurate, meaningful financial data on your practice each month, reach out to us at Books & Benchmarks. We provide monthly financial reporting with the context you need to make informed decisions. 

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