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Negotiating A Contract: Understanding Compensation

Posted by Jessica Gramlich on Dec 14, 2015 11:36:00 AM


Guest Author: Lori Hehn, DVM

There are a number of ways in which compensation can be determined. Today we’ll discuss these, as it is important to know and understand the different types of compensation packages that can be presented when you are negotiating job offers.

1) Salary only. This means that you will make X dollars per year no matter what your hours or production are.

2) Hourly. This is a set hourly wage (e.g. $50 per hour), independent of your production.

3) A guaranteed salary (e.g. $60,000 per year or $5,000 per month) plus a percentage of production, if you earn above this salary in production. Basically this is the same as salary or production, whichever is more (e.g. if your production for the month is $32,000 for the hospital, and you are on a 22% production bonus, you would get a bonus check of $2,040 (see math below). This is a win-win for a new graduate. You are guaranteed a certain amount so you can budget, but you have the opportunity to earn more if you are a higher producer.

(32,000 X 0.22 = 7,040
7,040- 5000 = 2,040 bonus)

4) A “base” salary plus production. YOU NEED TO BE CAUTIOUS AND REALLY UNDERSTAND WHAT THIS MEANS. This isn’t necessarily a bad way to be paid, but often new graduates are fooled, thinking this is the same as the option #3 listed above, and it is NOT in most instances (especially some corporate models). Look for the terminology “negative accrual” in your contract. What does this mean? Contracts can be confusing and this is why I want to clarify this as much as possible for you.

This means that you are essentially guaranteed your monthly “base” pay (e.g. $5,000 per month.) Then you can earn that extra bonus (just as above), assuming you have a good month of production. But let’s say that one month is very slow and you only earn $17,000 production for the hospital. Well, then you really only “earned” $3,740 of that “guaranteed” $5,000 check based on 22% of your production. Ouch. That means that you are now in $1260 for negative accrual. So…assuming that the next month is a good month, you will then OWE BACK the $1260 out of that production bonus amount. You would still get that guaranteed “base pay” but they take the negative accrual amount out of your would-be monthly bonus. This is essentially the same as production based pay only, but it isn’t presented in that way.

$17,000 (production) X 0.22 (percentage of production agreed upon) = $3,740. Since this number is LOWER than $5,000, negative accrual occurs:
$5,000 – $3,740 = $1,260 negative accrual

In general, it usually takes time for new graduates to be able to see a higher case-load or have higher production numbers. This type of pay can make a new graduate feel pressured and stressed. Some contracts will offer no negative accrual for the first year. This helps some, but unless you are a spectacular producer, it can be a stressful way to be paid. ALSO NOTE, negative accrual in some cases occurs even when you have been on VACATION. Look in the contract about vacation (included with your salary) or vacation “allowance.” If you have a vacation “allowance,” you can take your accrued vacation time, but if you are gone for a week out of a month and therefore cannot meet your base salary in production, you will still go into negative accrual. This can make one feel that they are having a very expensive vacation. I just point these things out so that you can truly understand what these contracts mean. Again, this is not necessarily a bad way to be paid (mostly a win-win for the owner/corporation) but you need to be comfortable with this method of pay and how it matches up with your ability to produce and practice medicine.

5) Production only pay. This means that you get a certain percentage (20-25% is the most common) of your production in pay/benefits. The contract will stipulate what is included in the “production.” Make sure to understand this. Certain products and services such as over the counter flea and tick medications, heartworm preventative, prescription diets, cremation services, etc. may not be included in your gross production. In a busy practice, this is a fair and good way to be paid; if the practice is very slow, this may be a poor option as you need to be mindful of your debt and expenses. If you can’t earn enough to pay your bills, then you need to find a better option.

There are probably many other combinations and ways to be compensated, but these are the main ones to think about.

If you have accrued a large amount of debt, consider doing some extra relief work on the side to help pay down your debt. Ask for numbers regarding the hospital production where you are interviewing. This will give you an idea about how busy they are and what you can expect to earn in production as a comparison. Realize that if something isn’t working out, you can always find something else. Try not to get frustrated and bogged down thinking about your debt and production. Practice the best medicine for each pet and the production will come. Helping and treating pets is why you went to veterinary school in the first place, and don’t lose sight of that. You can and you will be successful professionally and financially if you set the right goals and put your patients first!

Lastly, if you will be signing a contract and you have any questions about the language in the contract, consult an attorney so that you have a full understanding of the contract before you sign. This may cost you a small fee, but may be beneficial in the long run.

How to Land Your Dream Job

How to find your Vet Dream JobThey say getting in is the hardest part.

“They” don’t know how challenging vet school can be.

But you are in the middle of it and you know that it is very difficult; lots of late nights studying, worrying about your patients, mountains of debt, a giant board exam to pass prior to graduation and then, oh yeah, I guess you should think about getting a job too.

We put together a list of what you should be considering when looking for that DREAM JOB:

  • Know what Employers are Seeking in a Vet
  • The Top Tips for Finding a Job
  • Tips for the Interview
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Download Dream Job Guide  How to Land Your Dream Job after Vet School

Topics: Career

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