The area of income allocation is the most important in a practice
partnership. Through my career I have found that most bad practice
relationships have a common flaw. The contractual agreements did not respect
the security needs and perceptions of fair treatment of one or more parties.
Once the partnerships were underway, the “leverage” was often
in the hands of the party that was favored by the inequitable agreement and the
other party faced career suicide as the downside of raising an issue after the
fact. Most of the terminal issues related to money in the form of splitting the
net. Sometimes it was with regard to practice policies, hiring and firing, and
issues of personal taste with regard to the practice image.
All that said, a wise OD must get in touch early with his or her needs,
wants and preferences in the context of a group practice. Two or more ODs in a
practice must raise any issue for which they do not completely agree or for
which they cannot accept the others’ solution and make an effort to
identify the factors that can be measured and modulated to find the middle
ground and a win-win solution.
If a person feels he or she is treated in a fair manner when it comes to
money, it is easier to live with a number of other issues.
Consider five factors
I recommend using a multifactorial formula when figuring compensation
for optometric partners. My practice was a partnership that I enjoyed and
managed for more than 25 years. We had a formula with five factors. Some of
these could be eliminated today given changes in practice operations and
We split the net by allocating percentages to each partner in the
- production – 50%
- management – 10%
- seniority – 10%
- promotion – 10%
- time in the office – 20%
Production is the easiest to discover by use of an accounting system
that tracks production by each practitioner. Some production is not allocated
to a practitioner, such as filling an outside prescription. The manner in which
such nonspecific revenue is split is a matter of additional negotiation.
Management is based on the time/energy spent in managing the practice.
We simply sat down at the end of the year and wrote down the percentage of the
10% that we individually felt we deserved. It is interesting to note that there
was rarely much difference in the number written by each party. If one party
does 60% of the management, he or she would get 6%.
Seniority was calculated on a sliding scale over a 10-year period. The
first year the senior got all 10%. At the end of the 10 years each of two
parties would get 5%; hence, it neutralized by 0.5% a year. The notion here is
that by 10 years, seniority is pretty much neutralized. At one point, we merged
with another practice, and the merging practitioner was given credit for his
years in practice.
Promotion represents the out-of-office energy to promote the practice.
We had one partner who did not live in the community and did not interact with
anyone in a manner that would promote the practice. We had another that was
involved in the Chamber of Commerce, Lions Club, Toastmasters, local church,
parent-teacher association, YMCA and more. Clearly, the energy difference
needed to be quantified.
Once again, at the end of the year, we each wrote a number on a piece of
paper that represented the percentage of the 10% that we felt we deserved for
out-of-office promotion. There was rarely a controversy, as each of us knew
what we did and what the other did.
Time in the office is an effort to quantify the value of a practitioner
who would put in hours even if his or her production per hour was lower. We
wanted the office covered and we needed to reward being “on call.” In
this manner, a junior partner could increase his or her income by trading time
even if he or she did not produce more during that time.
To quantify this, we individually totaled our clinic hours and hours on
call. We cut the on-call hours by a factor to provide greater weight to regular
office hours. This is particularly valuable if you are expanding and have a
less busy branch office.
Quantify what is qualitative
The effort here is to quantify what would otherwise be qualitative.
Disagreements occur when qualitative or subjective-emotional factors are not
included and quantified.
The problem of negotiating the value of a factor remains. I have found
the exercise of discussing the factors that should determine the net income for
each usually ends in a reasonable “weighting” of the factors. After
they are provided a relative value, then you can discuss how you are going to
measure the factor.
For more information:
- Jerome Legerton, OD, MS, MBA, FAAO, is the practice management
section editor for Primary Care Optometry News and served as the
Benedict Professor of Practice Management for the University of Houston College
of Optometry. During his 26 years in practice, he was the managing partner of
an eight-doctor multispecialty practice in San Diego. He serves as a consultant
to the ophthalmic industry through his company, the EPIC Group. Dr. Legerton
can be reached at 3208 Lucinda St., San Diego, CA 92106; (619) 758-9140; fax:
(619) 758-9141; e-mail: firstname.lastname@example.org.