Sharing The Windfall

Sharing The Windfall

Veterinary Business Advisors, Inc.

In today’s landscape of veterinary practice sales, corporate acquisitions are far outnumbering private sales. One major reason for this is that the dollar amounts of corporate buyout offers greatly exceed those of any associate or other private interest buyers, often yielding a cash windfall to the seller. The associate veterinarians who remain at the practice, though, typically receive no supplementary compensation of any sort, and any previous hopes that an associate may have had of buying the practice are off the table. An argument can be made, then, that these associates accordingly deserve a new signing bonus. This session aims to decide upon an appropriate value for such an associate’s hypothetical signing bonus offer.

In the current arena of veterinary practice sales, it is impossible to ignore the intense interest in practice consolidation by corporate entities, but it should be noted that this trend is not brand new. Corporations have owned veterinary practices for over 30 years, tracing back to when VCA Animal Hospitals first bought a small animal practice in 1987. Other corporate entities eventually caught on, as VCA’s success led to the formation of several regional and national chains, such as Banfield, NVA, and VetCor. Analysts now place the number of corporate veterinary practice groups at over 40 and growing. In just the last three years, though, the landscape has drastically changed. Multi-billion-dollar deals are not unheard of, such as Mars, Inc. purchasing VCA for $7.7 billion in 2017, or the very recent purchase of Compassion First Pet Hospitals by JAB, Ltd. for $1.22 billion. As another factor to consider, private equity firms, which see veterinary practices as relatively safe investments, are now funding many of the acquisitions by corporate groups.

According to the 2017 AVMA Report on the Market for Veterinary Services, the number of small animal veterinary practices in the USA ranges from 28,000 to 32,000. Brakke Consulting estimated in 2017 that about 3,500 practices were owned by corporations.  Companies own roughly 10 percent of all general companion animal practices and 40 to 50 percent of all referral practices. John Volk, an analyst with Brakke, explains, “What happens is a larger company comes in and buys up the smaller companies and builds a bigger firm.” This is called “roll-up,” a common business strategy applied to many industries made up of multiple, small, independently-owned companies, and has become the new model for veterinary practice sales.

Contrast that with the traditional model for practice sales, in which an owner sells to one of his or her associate veterinarians, likely groomed from day one to eventually take the reins, or where the owner might sell the practice to another veterinarian who was not employed by that practice. Either way, that is no longer the case for most small animal practices. Owners have now found themselves in a seller’s market, where large corporations will pay top dollar for a thriving practice, with corporate windfall offers typically vastly exceeding those of any associate or other private interest buyers. A windfall is defined as “a piece of unexpected good fortune, typically one that involves receiving a large amount of money,” with synonyms being a bonanza or jackpot, or pennies from heaven. Corporations, now routinely providing such payouts to sellers in nearly unbelievable but carefully calculated offers, are doing so for the following reason: a corporation is ready and able to take a hit on a practice’s purchase price as long as its long-term profitability and growth prospects appear satisfactory. Many veterinarians have made a fortune out of their practices this way, often making two to three times what they would have made by selling to an associate. It can be hard to refuse a corporate buyout when the seller has offered such terms. Plus, a corporation can buy almost immediately, typically with a cashier’s check for the full purchase price in pocket, versus associates for whom the seller will very likely have to finance some or all of the purchase themselves, and for a fraction of the corporate purchase price.

Now we return to the subject of associate veterinarians. Although circumstances differ in each sale, one cannot deny that a significant reason that corporations are offering large cash windfalls is often the presence of the associate veterinarians. Corporations want to buy thriving practices that are operational from day one of purchase, with veterinary and support staff in place. A veterinary practice does not exist without veterinarians, and buyers generally have no intention of replacing associates. Furthermore, associate veterinarians usually do not wish to leave when practice ownership changes hands.

Here’s another reason why associate veterinarians are typically off the playing field. The typical associate sometimes cannot afford to be a practice owner. This often stems from the mass amount of veterinary student debt that they have accumulated and may be paying off for many years. According to results from the AVMA’s 2015 annual survey of senior veterinary students, of those students who graduated from the 28 US colleges and schools of veterinary medicine, 89% had educational debt at the time of graduation, with average debt for veterinary students being $142,394. Approximately 68% of the 2015 graduates had debt between $50,000 and $221,000, with 5% having debt greater than $300,000.

These are staggering figures, but what may be even more disturbing is the discrepancy in associate veterinary wage increases versus their debt. The current debt load of veterinarians is rising by $4,900 per year while average salaries are only rising by $700 per year. In 2017, $76,130 was the average salary for a veterinarian, while the mean debt was $141,000. This rising debt-to-income level is unsustainable and is one of the major factors making this profession less attractive than in the past. In fact, a recent Merck veterinary wellbeing study showed that only 41% of veterinarians overall and only 24% of veterinarians younger than 34 years old would recommend pursuing a career in veterinary medicine, citing that student debt coupled with low income was the top concern contributing to emotional stress. Furthermore, between standard and extended loan repayment plans, veterinarians on the average spend 15 to 20 years paying off their student debt. Hence, it is increasingly difficult for an associate to qualify for lending from a bank in order to compete with a corporation on a purchase price, with very little chance for the associate to be able to match the cash windfall offered by a corporation.

In this current climate, it is easy to see why so many practices are sold to corporations. But, while the seller receives the cash windfall for the sale, the remaining associates typically receive no supplementary compensation of any sort—the same associates who often helped to build the practice and who are integral for its revenue, often contributing 30% or more to the overall practice gross. This begs the question, then: Is it not fair for the associate veterinarians to share the windfall?

As stated, the corporation is buying a thriving practice, one not possible to operate at a similar capacity in the absence of associates. So, as an industry, should we not be sharing some of the profit from sales with the associates whom are so integral to the sale itself? Upon practice sale closure, associates are terminated by the original employer and then typically rehired by the new owner. An argument can be made that the associate accordingly deserves a new signing bonus, as they are technically a new hire and should be incentivized towards employment.

In order to decide upon an appropriate value for an associate’s hypothetical signing bonus offer, one could develop a calculation based on actual numbers. The prototype calculation herein requires basic information regarding time and revenue, including the following factors: the number of years the associate has worked for the practice (a minimum of five years of employment), the number of years the seller has owned the practice, the associate’s average gross revenue over the last five years, and the practice’s current gross revenue. With this information, we establish the Employee Leverage Factor (ELF), a figure which, when applied to the purchase price, yields the appropriate signing bonus. The calculation is as follows:

If, for example, an employee has been working for ten years at a practice that has been under current ownership for 35 years, and over those last ten years the employee has been bringing in an average of $700k while the practice brings in $2.1M, the equation would follow as such:

If the practice sold for $4.5M:

In this example, the seller still nets $3,620,000.00, cash in hand, over 1.7 times the gross of the practice.

Thus, we have established a fair and reproducible calculation of an offer that reflects the associate’s contribution to the “windfall” price received by the seller. The calculation should only apply in the case of a major windfall, in our estimates at least 1.5 x gross revenue and all cash. The calculation could be adjusted as the seller sees fit but, as it stands, it is a fair representation of contribution. It is based on the associate’s average gross revenue over five years, and also only applies if the associate has worked at least five years. So, if they have worked 5.5 years, but did not gross nearly as much in the first two years, those initial lower numbers are factored in. For example, if that associate had an average gross of $400k:

If the associate had worked for ten years, as in the first example, it is justified that the signing bonus offer is greater because that associate likely helped significantly more in building the practice, contributed more to the practice’s gross revenue, and thus made the package more appealing to the corporate buyer.

But, should there be a factor that weighs the windfall itself? The previous examples are based on a flat payout in a high windfall. But, if the windfall is of a lesser amount, then the associate’s share should be weighted as less, accordingly. If we use a maximum sale price as 3x the practice gross, we can incorporate a factor that includes the actual sale price over max gross, thus weighing the windfall.

The seller still nets $3,000,375.00 after receiving a lesser windfall for the sale.

A large share of the windfall could be enough to make the associate take the money and run, leaving the practice high and dry. To offset those odds, the signing bonus could be offered instead as a retention bonus, with part of the sum paid up front to the associate and the remainder paid over the agreed length of employment. Or, keeping in mind the high amount of student debt that most associates have, the calculated bonus can in whole or partially be assigned towards debt payoff. Thus, sharing the windfall would secure loyalty and stability for the future of both the associate veterinarian and the practice itself, meriting strong consideration.

The signing bonus offer would come out of the purchase price, and hence may not appeal to the seller. But we must remember that the long-term associates who would benefit from this process are the same ones who helped to build the practice to its current capacity, potentially contributed a high percentage to the practice’s gross revenue, and made the package more appealing to the corporate buyer, thus contributing to the windfall itself.

Without such a bonus, the associate otherwise gets nothing out of the deal. In their eyes, their future with the corporation is uncertain. They may have a new or broader non-compete agreement. They may not have wanted to work for a corporation at all. Furthermore, when they inevitably find out the size of the seller’s windfall, they may feel cheated after putting so much time and effort into the practice and getting no reward. This negative outlook may be compounded tremendously if they had otherwise hoped to someday buy or buy into practice ownership, with this disappointment added on top of the debt and stress they are likely already under. We also cannot disregard the real and unfortunate rise in the suicide rate among veterinarians in the face of issues such as emotional stress, debt, and compassion fatigue. That is the world in which the associate veterinarian lives in. We must therefore ask ourselves, is it moral as an industry to not include our associates in the windfall from corporate sales?

While the corporate consolidation trend will inevitably slow down, it is currently encompassing the world of veterinary practice sales, far and wide. As industry leaders, we must bear in mind the circumstances of many of our peers as associate veterinarians and the effects that our decisions to sell to corporate entities may have on them. The concept and application of sharing the windfall via the associate veterinarian signing bonus would secure a high degree of financial and thus psychological stability in the associate. Furthermore, it would create security for the future of the practice itself through the loyalty it instills in the associate, ensuring that they feel appreciated as the assets that they truly are.

References:

  1. Davidow, B. Who is Buying Veterinary Hospitals? The Veterinary Idealist. Mar 2018. https://vetidealist.com/who-is-buying-veterinary-hospitals-update/
  2. Veterinary practice trends webinar highlights further industry consolidation. Veterinary Practice News. Aug 2018. https://www.veterinarypracticenews.com/veterinary-practice-trends-webinar-highlights-further-industry-consolidation/
  3. Larkin, M. Who’s buying? Who’s selling? Journal of the American Veterinary Medical Association. Oct 2014. https://www.avma.org/News/JAVMANews/Pages/141015a.aspx
  4. Allen, C.J. Consolidation nation: Why veterinarians who hate corporate ownership end up selling out. DVM360 Magazine. Jan 2018. http://veterinarynews.dvm360.com/consolidation-nation-why-veterinarians-who-hate-corporate-ownership-end-selling-out
  5. Nolen, R.A. The corporatization of veterinary medicine. Journal of the American Veterinary Medical Association. Dec 2018. https://www.avma.org/News/JAVMANews/Pages/181201a.aspx
  6. Harrell, J. Fishing for acquisitions: 12 things corporations look for in a veterinary practice. DVM360 Magazine. Apr 2017. http://veterinarynews.dvm360.com/fishing-acquisitions-12-things-corporations-look-veterinary-practice?pageID=2
  7. Salzeider, K. 17 differences between selling to a corporation and an associate. Mar. 2017. http://veterinarybusiness.dvm360.com/17-differences-between-selling-corporation-and-associate
  8. Felsted, K. How to sell to an associate for a corporate price. Veterinary Economics. Aug 2017. http://veterinarybusiness.dvm360.com/print/450884?page=full
  9. King, D. Selling Your Practice – Private vs Corporate. Simmons Veterinary Practice Sales & Appraisals. https://simmonsinc.com/wp-content/uploads/2017/11/Selling-Your-Practice-_-King.pdf
  10. Davidow, B. Thoughts on Rising Veterinary Debt: In-state and out-of-state tuition. The Veterinary Idealist. Oct 2018. https://vetidealist.com/veterinary-debt-and-tuition/
  11. Bain, B., Dicks, M.R. Are veterinary students accumulating unreasonable amounts of debt? Journal of the American Veterinary Medical Association. Aug 2016. https://avmajournals.avma.org/doi/full/10.2460/javma.249.3.285
  12. Williams, R.B., Benson, A., Bain, B., Dicks, M.R. Factors affecting student load debt accrued by graduates of US veterinary medical colleges. AgEcon Search. Feb 2016. https://ageconsearch.umn.edu/record/229834/
  13. Verdon, D. Debt crisis looms for veterinary students. DVM 360 Magazine. Oct 2011. http://veterinarynews.dvm360.com/debt-crisis-looms-veterinary-students
  14. 14. Fender, K.R. Merck study: Veterinarians have normal mental health but poor well-being. DVM360 Magazine. Feb 2018. http://veterinarynews.dvm360.com/merck-study-veterinarians-have-normal-mental-health-poor-well-being

 

Pay Raise Requests: How to Make Them and How to Respond

Pay Raise Requests: How to Make Them and How to Respond

Kellie G. Olah, SPHR, CVPM

 

Veterinary practices, like many other businesses, often award pay raises in connection with an annual employee review. It’s a logical time to do so since that’s when employers provide performance-related feedback to their employees.

As an employee, you may feel that you deserve a raise, even though it’s outside of the normal timeframe for your practice to award one—perhaps, for example, you’ve taken on extra duties during the pandemic. If so, how should you approach your supervisor? As a manager, how should you respond to such a request? This article takes a look at both sides of the equation.

 

Employees: Preparing to Ask

If you’ve decided to ask for a raise at a time when one typically isn’t awarded, then it’s important to be prepared. Make a list of accomplishments you’ve achieved, quantifying them whenever possible, and writing down how these accomplishments have benefited the practice. In other words, what is the business value of what you’ve done? If you’ve won any awards, received a letter of praise from a manager or customer, or otherwise gotten concrete evidence of your performance, gather that information together for when you ask for a raise.

It can help to have data on hand about the average wages of a person who is doing your job in your geographical area. Where does your paycheck fit in? If yours is less than the average amount, it may be easier to build your case for a raise than if yours already matches or exceeds that figure—but you can still share information about why you feel you’re worth the dollar figure you’re requesting if you feel your case is strong enough.

Ask to privately meet with the appropriate manager and practice how you’ll present your request. During the meeting, make it clear that you’re asking for a raise that goes beyond the one you’d typically receive during your annual performance review.

Be prepared for a range of responses from your manager and know how you would respond to each of them. If, as one example, your manager says that they would love to give you a raise, but it just isn’t financially feasible right now, ask what you would need to do to earn that raise and a date when this topic can be revisited.

 

Employers: How to Respond

As a manager, you may be taken aback when an employee asks for a raise during a time when your practice doesn’t typically give them. Perhaps you have the authority to make the decision or maybe you need to discuss it with a human resources manager. Whether you are surprised or not—and whether you have the authority to decide or not—the savvy response is typically the same. Ask for more information and avoid reacting immediately. Listen carefully and take down notes. Once you feel that you have enough information, it’s perfectly fine to ask to schedule a follow up conversion. In either case, thank the employee for bringing this information to your attention and remain pleasantly professional and neutral.

Then it’s time to evaluate the case that the employee has built for this request, as well as to talk to other people in the practice who would have input into this decision-making process. What is your practice’s policy, in general, on giving raises? If you don’t have a policy already created, how have such requests been handled in the past? Is your practice’s philosophy that you only give raises during a certain time of year or do you consider each request on its own merits?

Compare that person’s wages both internally and externally, and doublecheck data they’ve given you. This involves looking at where this employee falls on the practice’s payroll. Do they receive a wage that’s comparable with other people performing the same work and who have been at the practice for a similar amount of time?

It also involves verifying what this employee might receive at other practices in the same geographic area. Also consider how important it would be to retain this person at your practice.

In some instances, the answer may be clear. The person may not have demonstrated a good case to get a raise or their job position may not warrant a higher pay rate. Or it may be that the employee asking for the raise successfully took on a big special project but doesn’t necessarily perform at a higher rate, overall. In that case, a one-time bonus or extra time off could be a good compromise.

If, though, this employee has made a good case for a raise, it can make sense to pitch the idea to others in the practice who would need to approve the pay increase. In a sense, you’d be preparing for the ask in the same way that the employee did with you. During this conversation, you can also focus on the high costs of recruiting and training new employees, with a focus on not being penny wise but pound foolish.

 

Sticky Situations

Sometimes, the situation can get more complex. These can include the following:

  1. An employee threatens to quit if not given a raise
  2. You do give one employee an off cycle raise; other employees hear about it and they want one, too
  3. A star employee gets an offer from another practice

In the first scenario, an employee might literally threaten to quit (“If I don’t get this raise, I’ll need to leave”) or it may be implied (“The new practice in town pays more and they’re hiring”). If this happens, the process—at least at first—can be the same. Listen carefully to your employee’s request and then set up a follow up conversation, which gives you time to think about how to respond. Consider the merits of the employee’s request, as before.

This time, though, you may also want to consider whether this employee uses the “I’ll quit” card in general, as leverage, or if this may be a genuine statement from the employee—meaning that, if they don’t get a raise, they’ll financially need to find a job elsewhere. Does that change your decision?

Will this situation trigger a revision of your policies about raises, perhaps limiting them to a certain time annually? No matter what you decide, assume that other employees will hear about it, regardless of any company policies that require salaries to remain confidential. How will you handle the situation when other employees ask to also get a raise? There is no one size fits all solution. The idea, here, is to look beyond the specific request being made by a specific employee. Instead, place this employee’s request into an overall context of the practice and make decisions that make sense for all employees.

In the third scenario—one where an employee gets another job offer—was that employee job hunting or did the offer come, unsolicited? If your employees are being recruited, it may confirm to you that you have a great team without necessarily indicating that those employees are unhappy. In other cases, employees may be putting out feelers to see what they’re worth in the job market—and, in other situations, those employees may be dissatisfied in their current position.

If an employee asks if you would match an offer from another practice, it can help to determine if they really want to stay. If they are unhappy with aspects of your practice, they may well leave the next time they get a job offer. If they do want to stay, how valuable are they to your practice? How difficult would they be to replace? If you do give that particular employee a raise, what impact would that have on other employees? Again, no one right answer exists.

 

Sidebar: How to Deny a Raise Request

Sometimes, you’ll need to turn down a raise request from an employee. If so, set up a private meeting and then tactfully yet honestly get to the point. If there is a performance issue, share some specifics about how this employee could work towards getting the desired raise. If it’s a financial issue, say that. This isn’t a time to get into exhaustive detail. It is, however, an opportunity to encourage the employee, if possible, and let them know what you appreciate about them.

Through this process, you may discover holes in your practice’s policies about giving raises. If so, now is the time to fix them so that more clarity exists for everyone, going forward. If this process uncovers disparities (such as pay differences based on gender), then this is crucial to prioritize and address. Update your employee manual and share specifics.

Chewy and Covetrus Face Off in Veterinary Prescription Dispute

Chewy and Covetrus Face Off in Veterinary Prescription Dispute

By: Isaac Brownstein 

A 2017 study shows that 77% of people consider their cats and dogs to be members of the family—and so it isn’t surprising that, collectively, they’re willing to spend big dollars on their pets. According to the American Pet Products Association, Reuters reports, Americans spent $72.56 billion on their pets in 2018 alone with the Federal Trade Commission anticipating pet prescription drug sales to exceed $10 billion annually.

Savvy businesses—including Chewy, Covetrus, Vetcove, and more—have therefore identified lucrative revenue opportunities to take advantage of by selling veterinary products and services, including prescription drugs. Currently, veterinarians still sell most of the pet medications, but cat and dog owners are also exploring newer options to see which ones offer the most convenience and/or lower prices. After all, people are used to shopping around the clock from the convenience of home with just a few clicks and so it’s a natural progression to get pet prescriptions this way.

The result? A gradual chipping away of the predominance long held by veterinarians for direct prescription sales as well as, in 2021, the eruption of a legal clash between two publicly held companies—Chewy and Covetrus—that have entered the pet prescription space fairly recently. The lawsuits between these two companies are not especially surprising. What’s uncertain, though, is how all will unfold and what impact they’ll have—short term and long term—for the veterinary industry where practices have relied upon prescription sale revenues to help run their businesses.

Legal Nuts and Bolts and Parties in the Dispute

On May 19, 2021, Chewy, Inc. filed a lawsuit in the Supreme Court of the State of New York against Covetrus, Inc. and Vetcove—with the legal matter heating up further after Covetrus countersued in August 2021. Here are high level looks at each of these companies:

  • Chewy is a publicly traded company, founded in 2011, that sells pet supplies online and, in 2018, added Chewy Pharmacy to their business offerings.
  • Covetrus is also a publicly traded company, founded in 2018, and they provide global services for veterinarians. Services include the creation of online pharmacies that are branded for specific practices.
  • Vetcove is an independently-owned company founded in 2015. Vetcove is completely unaffiliated with Covetrus and Vet’s First Choice.

In their lawsuit, Chewy alleges that Covetrus and Vetcove collaborated to redirect online orders of pet prescriptions away from their company through improper collection of customer information and deceptive messaging.

Although, on the surface, this may seem to simply be a dispute among businesses that are competing for the same dollars, at the very heart of it is the veterinarian-client-patient (VCP) relationship and how it should be defined. How this lawsuit is ultimately resolved, then, can impact the very nature of the VCP relationship in the future.

Veterinarian-Client-Patient Relationship

According to the American Veterinary Medical Association (AVMA), the physical examination of pets is an essential aspect of their care. So is an ongoing relationship with the animals and their owners and careful record keeping of their health care, including prescriptions. Traditionally, pet owners paid for and received their pets’ prescriptions as part of an in-person visit. How pet prescription processes have been changing—and what’s acceptable for quality pet care—is a central part of the Chewy versus Covetrus lawsuit.

Pet Prescription Processes

In most states, veterinarians provide pet owners with the prescriptions they need for their animal companions or they approve the purchase of regulated medications and other products.

If pet owners decide not to get the prescriptions directly from their veterinarians’ offices, they can then choose a pharmacy to fulfill these approved products—and some of them select Chewy. If someone orders a regulated product from this online company and there isn’t an authorization on file, Chewy will contact the prescribing veterinarian to get confirmation before fulfilling the order.

According to Chewy’s lawsuit, when their customers participated in this process, they were redirected to buy the medications from Covetrus. This was accomplished, they allege, because Vetcove accessed their customers’ confidential data—and these customers were then sent confusing messaging that guided them to make prescription purchases through Covetrus.

It should be noted that more than 13,000 veterinary hospitals and nonprofit agencies use Vetcove’s purchasing platform in the United States.

Chewy states that, because of these actions, their company has suffered irreparable harm. As a remedy, they want:

  • an injunction that would prevent Covetrus and Vetcove from continuing this behavior
  • compensation for lost profits (dollar amount not stated)
  • compensation because of harm to their reputation

About three months after Chewy filed this lawsuit, Covetrus countersued.

Covetrus Countersuit

In their legal filing, Covetrus states that, because Chewy does not require a written prescription from a veterinarian—instead being willing to contact them for authorization—this is harming the animal’s well-being by removing veterinarians from the health care process. They also claim that Chewy is intentionally suppressing competition, which has the potential to cause veterinarians “substantial financial harm.”

As a further action, Covetrus emailed their veterinarian customers, sharing their belief that Chewy’s business strategy is actually undermining the “indispensable vet-client-pet relationship.”

In response, Chewy says that Covetrus is misrepresenting its lawsuit and business model.

Covetrus is not making comments about Vetcove and any role that its software is playing in Chewy’s lawsuit. Covetrus does deny, however, having a close relationship with Vetcove. As for Vetcove, the company has not responded to Chewy’s lawsuit or Covetrus’s countersuit with the CEO making no public comments on either.

Looking Ahead

It’s impossible to predict how the court system will decide this case, but it’s almost certain to affect the veterinary industry. If, for example, the court system decides that Covetrus is correct and Chewy’s business model doesn’t fit within a reasonable VCP relationship, that will take the industry in one direction; if the decision tilts in another way, that will affect the veterinary world in another one, as well.

 

Employee Performance Coaching and Setting Goals

Employee Performance Coaching and Setting Goals

Charlotte Lacroix, DVM, JD

Veterinary Business Advisors, Inc.

Whitehouse Station, NJ, USA

The overall objective of any Performance Management Program (“PMP”) is to ensure a Practice and all of its subsystems (processes, departments, teams, employees, etc.) are working together in an optimum fashion to support achievement of the overall strategic and operating performance goals.   In simpler terms, a Performance Management Program strives to ensure the right people with the right competencies are in the right jobs at the right time.  An effective PMP will also look to achieve the following objectives:

·        Shape the culture and reinforce the core values of the Practice

·        Facilitate communications between supervisors and subordinates

·        Motivate and reward superior performance

·        Effectively manage unsatisfactory performance

·        Identify opportunities for personal growth and development

·        Link pay to performance

·        Stimulate individual and collective productivity

 

Why PMP’s Fail

While Performance Management Programs have been utilized for many years, they are not universally considered an effective management tool.  In some cases, performance management is more about checking a box than about aligning employee performance and development.  Instead of viewing the performance review as a valuable communication and recognition tool, many Practices think of it as a necessary evil; a paperwork exercise that managers love to hate.   Exacerbating this feeling of disdain is the fact that supervisors often spend a majority of their time focusing on the small minority of employees that do not meet expectations and not enough time giving appropriate praise, recognition and appreciation for those who do.  Even your best workers can be better, but if you don’t give them the guidance they deserve, then they will never reach their full potential.  Some of the more common shortcomings of a PMP include:

  • Individual goals are not tied to the strategic direction of the Practice
  • Senior management is not fully committed or invested in the process.
  • Performance objectives are only looked at every six or 12 months and not on a continuing basis.
  • Performance appraisals are not included as part of a larger employee development initiative.
  • Little or nothing is done with the actual appraisal results.
  • Management fails to develop and administer a coaching and improvement plan for any employee who is not meeting expectations.
  • There is a lack of clarity in the link between pay and performance.

 

Developing a Performance Management Program

When creating, institutionalizing and communicating a PMP effectively, it is a valuable resource for a supervisor to help employees identify and develop needed skills, knowledge and abilities.  However, if used inappropriately, a PMP can demoralize employees, frustrate managers and expose a Practice to potential legal risks.  Therefore, several questions must be addressed when developing a PMP.  Who will be involved in the performance review process – will the review be horizontal, vertical or a 360°?  How much time can each contributing party commit to the PMP?  Will the review focus on objective results and/or subjective perceptions?  How often should the reviews be performed?  Who will oversee the PMP to ensure it is being used properly?  Who will provide training to the reviewers?  What will be done with the results of the reviews?  And, most importantly, how will the success of the PMP be measured?

 

Conducting the Performance Evaluation Review

Prior to meeting with an employee to conduct the performance evaluation review, it is advisable to have the employee complete a self-evaluation form.  Give the employee approximately 1 week to complete the performance evaluation form and return it to his/her supervisor 1 week in advance of the performance evaluation review date.  Only after the supervisor has completed the performance evaluation form for the employee, should the supervisor review the employee’s self-evaluation form and rating.  Following this process will help ensure the supervisor performs an independent performance evaluation that is not biased by the employee’s perceptions of how he/she performed.   Other important points to consider when preparing for and conducting a performance evaluation review include:

  • Be sure to deliver the performance evaluation review at the designated time-giving the review after the date can leave an employee feeling slighted, anxious and devalued. It also sends the unintended message that the performance evaluation review cannot be that important to you or the Practice.
  • Be mindful of overrating an employee- rating an employee higher than is warranted may be an easier message to deliver, but it can create other problems. For one thing, it may give failing employees a false sense of security and make it difficult to administer needed discipline.
  • When discussing a performance issue with an employee, be sure your verbal and written comments support your rating and always use specific examples that clearly demonstrate the level of performance.
  • Be sure you are rating the entire performance evaluation review period – supervisors often fall into the trap of rating only the most recent activities and actions. If an employee is being evaluated annually, the performance evaluation review should consider everything, good or bad, that has occurred during the past twelve months vis-à-vis the employee’s performance.
  • Ask for feedback-there may be mitigating factors and circumstances that affected the employee’s performance during the review period. It is critically important to provide an employee the opporunity to discuss and present an explanation of any factors and influences that may have contributed to his/her performance.  Encouraging this two-way dialogue ensures “everything” is considered when developing the performance rating.

 

Developing Performance Goals

Another key piece of a PMP involves developing performance goals and expectations.  Goals are written statements that clearly describe certain actions or tasks with a measurable end result.  Goals should be well-defined, detailed declarations of specific actions to be taken during the upcoming review period for which measurable outcomes are expected.  Each goal should be specific enough to let the employee know what is expected to be accomplished, why it is to be done, and the target date for accomplishing it.  The following acronym is often used to assist supervisors in developing goals for their employees:

 

S        Specific-answers what, why and when actions or activities should be accomplished.

M       Measurable–clarifies how to determine if the goal has been achieved.

A        Agreed Upon- both the employee/supervisor should agree on what is expected to successfully complete the goal.

A        Aligned-supports the Practice’s mission and overall objectives.

R        Realistic-ensures goals are doable but with a stretch challenge.

T        Time Specific-establishes deadline for completion.

 

To Sum It All Up

In order to determine the effectiveness of a Performance Management Program, it must first and foremost support achievement of the Practice’s mission and goals.  It should help employees understand what is expected of them and against what measurement criteria their performance will be assessed.  If the program is utilized properly, a welcomed byproduct of the PMP is improved communications between supervisors and subordinates.  As the PMP evolves, a Practice should begin to notice a stronger link between pay and performance.  Rather than giving arbitrary increases to all employees, the PMP will provide justification for differences in salary increases and rewards.  Finally, documented differences in performance should help identify employees able to assume additional responsibilities as well as those individuals requiring additional development and/or discipline.

How Practice Managers Can Keep Up with Changing Employment Laws

How Practice Managers Can Keep Up with Changing Employment Laws

By: Kellie Olah, SPHR, SHRM-CP

Although it has always been challenging for many small business owners to keep up with evolving employment-related legislation, COVID-19 has made this situation even more problematic. Legislation is being rapidly passed, containing new and sometimes confusing information. It can be hard for your practice to keep up but it’s worth the effort because when you don’t have access to the most current information or you lag in compliance, this can lead to numerous problems. The consequences can be as serious as litigation against your practice.

As a general approach, it can be helpful to gather a list of trustworthy resources that you can regularly check. This includes reviewing the most current information on topics ranging from healthcare and injury/worker’s compensation to paid time off, unemployment, retirement, and much more. Once armed with the foundational knowledge you need, you can then determine which tasks you can handle within your practice and which ones require help from an expert, such as an employment attorney.

 

Employment Law Resources

At a federal level, the U.S. Department of Labor (U.S. DOL) provides information on a comprehensive range of employment issues. As just one example, here is their resource page that helps employers and employees to address the impact of the coronavirus. The DOL also provides a newsletter, along with contact information for your state labor office so that you can stay up to date with state-level laws and pending legislation. Subscribe to receive email updates from both a federal and state level (for each state where you practice).

If you come across a legal term that is new to you, or one where you need clarification, the Cornell Legal Information Institute has provided a wiki-style legal dictionary and encyclopedia. You can also find human-resource-related legal advice at NOLO’s free employment law center. NOLO has been publishing legal guides since 1971 and has developed into a trusted website.

You can also glean helpful information from the Society for Human Resource Management (SHRM) website, including free tools and information. This organization has a mission to empower people and workplaces by advancing human resource practices and maximizing human potential.  If you find the free content provided by SHRM to be valuable, you can also consider becoming a paid member.

The National Federation of Independent Business (NFIB) is also a helpful resource, with a small business legal center that provides information to small business owners. Plus, NFIB monitors relevant legislation and advocates for small business interests in courts. You can also find state-related employment law news and, if you need more in-depth information about issues that are specific to your practice, you can become a paid member. With that membership, you can call the legal center to ask questions.

Another in-depth resource is HR-Business and Legal Resources. There, you can find state-specific information on a variety of employment topics. There is a reasonable amount of free content with more available for members. To see if the premium content would be valuable for your practice, you can sign up for a 14-day free trial.

What we’ve provided isn’t a comprehensive list of available resources, but they are some of the most commonly used and trusted ones. If you find another credible source that provides the employment law information you need, share it with the rest of your practice.

 

Next Steps

Once you’ve identified resources for your practice to use and you have signed up for newsletters, email alerts, and so forth, what’s next? These steps can include:

  • deciding who at your practice should monitor all the information that’s coming in; if you have a discrete human resource department, that answer may be easier than if multiple employees are wearing the HR hat
  • concluding which sites and resources end up being the most valuable to your practice; it can make sense to start out by receiving and reviewing information from a larger number of organizations and then focusing more on those that provide the targeted information you need
  • determining which message format works best for you; for example, your practice might find watching videos of employment law updates is the best use of everyone’s time
  • attending relevant online trainings; these may come with a cost, but they’re likely to be much less expensive than traveling to a location where trainings are being held—and, because of the COVID-19, online resources are more practical and becoming more prevalent

Although online trainings may not allow for the in-depth personal networking that can take place over, say, a weekend-long event at a training center, they’re more affordable; can fit within busy schedules (especially if you have access to the videos after a live event); and can be ideal for practices where in-person trainings aren’t often available nearby.

As you learn new information and as employment law evolves, it’s important to review your policies and procedures; update what’s needed; and share the revised information with your practice team.

 

When to Talk to an Employment Law Attorney

The ideal situation would be to have an employment law attorney on retainer— one you trust, and who understands the legal issues that veterinary practices often face, as well as your practice’s unique workplace culture. If that’s not possible, then the next best option is to choose an attorney with expertise that dovetails with your practice needs and consult with him or her when issues of significance arise, or you need clarification on areas of employment law.

Examples of when it can make sense to consult with an employment attorney include, but are not limited to, when:

  • firing an employee; ideally, you always run employee firings past your attorney, but especially if you believe an employee might sue the practice, perhaps because of an employment contract or because he or she is in a protected class
  • an employee files a complaint or sues your practice
  • creating a contract or agreement
  • creating or updating your employee manual
  • bringing in or buying out a practice partner

 

Choosing the Right Employment Attorney

If you don’t have one yet for your practice or you’re looking to switch attorneys, be clear about what you want the attorney to do. If you want him or her to regularly update you on employment law changes, for example, then that’s different than if you want someone available when you want to address a specific issue at your practice.

Consider asking other practices and small businesses for recommendations. Ask what they like about the attorney and if they’ve had any problems with their choice. You can read online reviews of recommended attorneys, but remember to take them with a grain of salt because it’s hard to find an attorney of substance with no unhappy clients. You can also use lawyer directories such as those available through the American Bar Association, and other similar websites.

Once you have a short list of candidates, interview each one. Many attorneys, but not all, offer a free initial consultation so you can get to know one another. This can help you make the right choice. You’ll want an experienced attorney who is well versed in the laws of your state, someone you feel comfortable with and who communicates well without reverting to jargon that can be confusing. By the end of your initial conversation, you should be able to determine if that individual has a personality that you would enjoy consulting with, and has the knowledge base to successfully assist you with managing your veterinary practice.