A Signing Bonus May Not Be the Answer

by | Jan 15, 2021

Associate-centric point of view…

There is a way to financial security and ownership for associates. Unfortunately, a signing bonus will not get you there.

The numbers below are for illustration purposes and are not based on an actual valuation.

Plan A: a $1M revenue hospital, with one owner DVM offers you $10K signing bonus to join as the second doctor.

Plan B: a $1M revenue hospital, with one owner DVM offers you $10K of ownership share (value) or simply 1% ownership to join as the second doctor.

Why is Plan B better than Plan A…

Reason #1 – Market economics benefit the owner, even a 1% owner. This is going to be a gross over simplification, but in the 9 years I have been part of the veterinary profession, the going valuation multiple has gone from 5x to 10x. This is a very powerful multiplier that does not exist with a signing bonus.

Reason #2 – Associates share in the hospital’s growth and increased value. If the hospital grows from $1M to $1.2M, Plan B’s $10K is now worth $12K. Plan A’s $10K is still $10K.

Reason #3 – Plan A’s terms and conditions are more likely to be “punitive” in nature. Plan B’s may also have risk mitigation language, but are more likely to oriented around shared goals.

Frankly, the most compelling reason might be that an associate, who has taken the path to ownership, will likely stay on that path. I subscribe to Newton’s law, “an object at rest stays at rest and an object in motion stays in motion…”

Owner-centric point of view…

For most owners, Plan B should literally be considered as Plan B. You should utilize other options first.

To be absolutely clear, the risk/benefit analysis is much more favorable to the associate than the owner. An associate, with basic due diligence, can fairly easily assess whether the hospital they are considering will deliver the outcome they seek. For owners, the associate analysis will not be clear cut. Plan B is more ideally suited for “key” associates you already have and know. With this in mind, if you need a Plan B, here are my rationales for why it could make sense.

Why is Plan B better than Plan A…

Reason #1 – Plan B is an “investment” in your hospital and team, but Plan A is just a one-time expense and no more. It is a band-aid you will have to reapply over and over again.

Reason #2 – Limits the disruption to business (financial, emotional, and everything in-between).

Reason #3 – Cost avoidance…how much is your time worth? The going rate for an associate recruiter is 25% of the associate’s annual salary. As you know, costs don’t stop here.

Reason #4 – Increases the value of your hospital, yes increases. This is true for one doctor practices (see Exit Options…article), as it is for ten doctor practices. Think of it this way. What happens to the value of a 3 doctor practice when it losses a doctor? Even better, what happens to the value of a 3 doctor practice, when the associates have “skin in the game” and share the same goals and motivations of the owner?

Reason #5 – It is difficult to quantify, but I am convinced that “peace of mind” is a tangible business asset. Plan B, if executed and structured properly, can offer stability and a “collective” approach to growth and success.

Final Thoughts

There are special hospitals that do not have trouble retaining or recruiting associates, and are large enough to leverage their scale to ride out the bumps. However, for the vast majority of hospitals, the supply and demand economics for associates will not change for the better in the foreseeable future. There are risks with Plan B for both the associates and owners. However, if structured properly, I believe it is a much more sustainable solution than signing bonuses.

As a side note, I am excited to announce that I will be launching my website in just a few weeks. Please stay tuned.