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How Benchmarking OD Pay Can Inform Associate Bonuses

by | Jun 8, 2024

After focusing on bonuses for non-OD staff for two weeks (read Part 1 and Part 2 to learn more), let’s switch gears and talk about bonuses for ODs. We noted previously that we’re skeptical of the impact bonuses have on non-OD staff performance. When it comes to clinical staff, though, we believe variable compensation (bonus plan) can be a valuable tool in managing Associate ODs. 

As we look at OD pay benchmarks, it’s important to keep in mind that the benchmark we’re using combines owner compensation with associate (employed) OD compensation. This introduces some variance because while we assume associate compensation will closely mirror the “fair market rate” for OD pay, owners often choose to pay themselves substantially less or more than that rate. 

All the same, we’re confident that by focusing on the middle 60% of practices, we can filter out those outlier results. Here’s the distribution of OD Pay as a Percentage of Collected Revenue. 

In 2023, the median Books & Benchmarks Practice spent 17% of gross revenue on OD compensation, and the middle 60% was between 14% and 20% of revenues. Here are some insights we can draw from these numbers:  

  1. Straight production pay for ODs will generally be between 14% and 20% of revenues generated. As a consultant, I’ve typically seen production pay for associates land between 14% and 18%. At the high end of the range, I typically recommend equity partners take 20% of their production as pay for their roles as optometrists. 
  1. While norms are calculated as percentages, it’s important to remember that the actual price for optometrist labor is a dollar figure, not a percentage. Multiple sources (Review of Optometry, American Optometric Association, and ODs on Finance) have recently priced the average pay for employed ODs in private practice at around $145,000 per year for full-time work. The range is probably between $130,000 and $180,000 per year. 
  1. Having said that, benchmarking your associates’ pay against their production is a good idea. A good rule of thumb is that their compensation should be around 14% to 18% of their production. 
  1. Since associate production depends on the practice’s patient volume and systems as well as their efforts and talents, there’s no need to base their pay solely on those percentages. However, practices with a track record of high OD production can use these metrics to justify paying associates above-market wages for exceptional production. 

Compensating Associates 

There are two ways I recommend integrating bonuses into Associate OD’s compensation. In either case, any time you’re putting a bonus plan together you should calculate:  

  1. What you expect the plan to pay out under normal performance 
  1. The payout for the best performance you think the associate can achieve 

With that understanding, here are two ways you might consider bonusing associates: 

  1. Base salary PLUS 2% to 4% of production. Start with goal production and pay in mind, then back into the base salary.  
  1. Base salary OR 14% to 18% of production. Do the math on where this will land at max production. Eighteen percent of $1.2MM is $216,000 a year, well above norms. While most practices can make a profit on an associate with this level of production and pay, some might achieve the same results with a lower bonus. 

Want the data to assess how efficient your practice is with your OD compensation? Books & Benchmarks automates financial reporting and benchmarking for independent practices across the country. Contact us today to learn how we can help you make better decisions for your practice.  

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