Merit Based Raises

When making a decision about pay raises for employees, is it best to divvy out raises based on loyalty and longevity with the practice? Or should work performance determine pay raises?

Let’s be honest: No matter how much an employee loves his or her job, at the end of the day, they’re not at work for the fun of it. Like all of us, they work to pay their bills and support themselves and/or their families.

That’s what makes financial incentives work.

But which kind of incentive is the most effective? Which will keep both your employees and you, the practice owner, happiest?

Our dental coaches at Bryant Consultants have looked at several different pay increase structures, and today, we’re spotlighting one in particular: merit-based raises. If you’re curious about raises based on performance, read on for more information:

How do merit-based raises work?

Merit-based pay increases, or raises based on work performance, help retain employees just by the very nature of pay increases, but they also help drive increases in employee production by rewarding people for exemplary effort and work. General pay raises, on the other hand, reward employees for longevity. 

If implemented and carried out with openness, consistency, fairness and transparency, merit-based pay increases work. Before implementing merit-based raises, you can ask yourself:

What factors will I consider when making my decision on a pay raise? Will I look at performance, experience, and education?

Once you know the answers to those questions, clearly articulate to your team how the system will work and specifically how they’ll be able to earn a raise. Give team members plenty of time to ask questions (that you will openly answer) and prepare for the new pay-raise structure.

Potential Downside: Without focus, fairness and consistency, it’s too easy to justify handing out merit-based raises to, for example, your favorite employees. In that case, other employees will quickly notice you rewarding their colleagues for mediocre work. This will lead to mediocre productivity, and employee morale will tank.

If your current pay increase system isn’t merit-based but you’d like to switch to raises based on performance, there are different ways you can introduce it to your team. You could say something like:

“I want to be clear that this is a fair and transparent system. We’ll be looking at several factors when making our decisions on pay raises, including patient satisfaction scores, productivity, work attendance, experience and education. I know this may concern some of you, but I want you to rest assured that we will be fair and consistent in the application of our criteria for pay increases. We will answer any question you have and also provide you with regular feedback to help you know specifically how you can earn a raise.”

It’s important to be positive and upbeat about the change to merit-based raises. Explain to team members that this system shows how much you value their hard work and efforts, how excited you are to reward top performers and retain quality employees and how committed you are to each of their success. Also explain to them how the new system benefits them and their bottom line, too.

What’s a standard merit-based increase?

Merit-based increases — the standard is a 3-5 percent raise — should be separate from cost of living adjustments (COLAs) and any adjustments to pay for inflation and promotions.

Merit-based raises increase employee retention and productivity. As such, as long as they’re implemented and carried out correctly, they can help your employees and your practice.

Do you have other concerns or experiences with merit-based raises? Reach out to your dental coach with Bryant Consultants, and we can address your concerns and answer any questions you may have.