Should a Managing Partner Receive Additional Compensation?

Should a Managing Partner Receive Additional Compensation?

Originally published on TheDentistsNetwork.Net

By Thomas L. Snyder, DMD, MBA, Senior Director | Henry Schein Professional Practice Transitions

When forming partnerships, a common question raised by the founding partner is if they are entitled to receive additional compensation for spending non-chairside time performing managerial tasks. The answer to that question will be “it depends”. The deciding factor is whether or not the new partner is willing to assume key managerial responsibilities. If the founding partner continues to spend considerable time routinely performing “non-clinical” management tasks then, in our opinion, additional compensation is warranted.

In many cases where associates have been working in the practice for several years and eventually become a partner, they often fall into the trap of just being a “clinician” and do not show any interest in completing managerial tasks. Of course, this matter goes both ways. The founding partner should attempt to involve the associate in assuming some managerial duties during the associate phase. If not, bad habits can be formed and your new partner will continue to focus solely on clinical duties.

One way to address this issue is to pay the founding partner a management fee. This management fee is considered an operating expense of the practice. The payment of a management fee is a fair and reasonable acknowledgment of the time and effort that the founding partner is making to manage the practice. These non-clinical duties can often amount to several hours per week (sometimes including weekends). Alternatively, this administrative time could have been spent “at the chair” or simply as personal free-time. In any case, it is an imbalance that can create potential rifts in your partnership relationship if not recognized.

Such tasks may include:

  • Managing personnel
  • Payroll
  • Compliance issues with OSHA, HIPAA
  • Maintaining proper dental supply inventories
  • Supervising the payment of bills and bookkeeping

In our experience, a fair compensation range for a management fee is $2,000 to $2,500 per month, based on time and number of responsibilities.

An alternate format, in place of a fixed payment, is to compensate the founding partner based on a percentage of practice gross revenue or net profit. This approach can be a win for the new partner in that the founding partner only receives compensation in the event the practice shows growth or maintains good profit margins.

For example, in practices generating less than $1,000,000 consider paying a payment of 5% of Total Available Partner Compensation to the managing partner for that year. Available Partner Compensation is defined as Practice Revenue (Collections) minus Practice Operating Expenses. For practices generating more than $1,000,000, consider a 3% Bonus Payment of Available Partner Compensation. If the practice’s Available Partner Compensation decreases in a particular year, no bonus payment is made.

Another approach to consider is to set goals for practice growth based on an incentive payment relating to a percentage of Gross Revenue. For example, payment of 10-15% of the revenue above prior years’ revenue. The only caveat here is that the practice’s overhead ratio must not increase or the incentive bonus would not apply.

At the end of the day, the ideal situation should be that the partners share management responsibility equally, so no management fee or other incentives need to be paid.  However, in cases where only one is really interested in providing clinical services with no interest in managing the practice, it is only fair that the other partner is compensated appropriately.