Salary or commission?

March 25, 2005
When considering "salary vs. commission," first decide what is most important to you in your overall compensation package.

Dear RDH:

I have always worked on a salary basis. I am interviewing for a new job and the doctor wants to put me on commission. Which is better in the long-run, salary or commission?

Puzzled in New York

Dear New York,

Your question is a common one, and the answer can be complex. To analyze this, you'll need to figure out what you need (emotionally) from your salary. Is it certainty, or incentive? Do you like to take risks in hopes of a bigger reward? Do you like being compensated at a higher level because of increased production?

Compensation can be broken down into three areas:

1.) Direct Compensation -- your salary

2.) Indirect Compensation -- benefits such as health insurance, vacation, cont. education

3.) Deferred Compensation -- retirement plans

When considering "salary vs. commission," first decide what is most important to you in your overall compensation package. If your spouse provides health insurance, or you inherited large sums of money and have no need for retirement planning, you can negotiate for a higher direct compensation (salary).

As a general rule in business, employers are moving away from these costly benefits, so if you find an office providing them, take full advantage. Individuals typically pay higher premiums for health insurance and are not well-equipped to manage their own retirement portfolios. Having these benefits provided by an employer could be the most cost-effective way of creating financial security.

Pay close attention to opportunities to fund a 401k plan. $2000 placed into savings in your twenties can mean $32,000 at age 65. This makes the "deferred compensation" portion of your package the most important aspect; one which many hygienists overlook. With employer matching, this could be even more advantageous.

Commission compensation can be very lucrative for hygienists who are motivated, are time efficient, and are team players. There is a misnomer circulating that all hygienists on commission should receive 33% - 35% of their production. This is an incomplete, inaccurate assumption. The total compensation budget for the department is 33 to 35% of production. This must take into account staff benefits (as mentioned above), employer tax matches, administrative support costs of the department, and cost of goods used in delivery of service. If you boss is offering a lower commission, say 25% with benefits, this may be in-line with profitability markers for that office.

How to decide? First start by averaging your previous 6 months production (minus any write offs for insurance adjustments if you are in an insurance driven office). Then divide your average monthly total compensation (salary + value of benefits for the previous 6 months) by your average production. Discover the percentage ratio of salary / productivity. If this is less than 33% then you may do better on a commission basis, or a hybrid salary + incentive program. Most offices that I coach include the hygiene department in a team bonus. This becomes a win-win for everyone.

Bottom line in compensation ¿ it all comes down to productivity. The more you produce, the more opportunity there is for advancement and salary increases. Commission, profit sharing, team bonuses are all ways of shifting some of the risk from the employer to the employees and helps to maintain productivity.

Vicki McManus, RDH is a business development coach and international lecturer on marketing, communication skills, and aesthetic hygiene. She provides business owners with comprehensive productivity and compensation reviews for a nominal fee and can be reached at [email protected]