Money Minutes for Doctors #11 - Contracts, Part 2
Welcome back to our monthly financial podcast, Money Minutes for Doctors. In this episode we jump back into the subject of employment contracts with part two of one of the most important topics for a physician coming out of residency. As usual, our talk is with Ms. Katherine Vessenes, JD, CFP®, RFC, Founder and President of MD Financial Advisors. Enjoy!!
About Ms. Vessenes:
Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.
Quick Summary:
Changes in health care are impacting all physicians, it has never been more important for doctors to carefully review their new contracts before they sign them.
There has never been a contract that was not negotiable and improved in some way!
Liquidated Damages: Although I have only seen this in three contracts in the last year, this clause is becoming much more common.
Liquidated damages is a legal construct that allows the parties to state up front, in writing, what the damages will be if the contract is breached. Parties agree in writing if the doctor violates the contract in any way, even if something as simple as not giving proper notice about leaving, the doctor will owe the employer the amount specified in the employment agreement, payments can exceed several hundred thousand dollars.
Tip: never sign an agreement like this without consulting an attorney. It is definitely important to remove it from the agreement if the employer is agreeable.
Tail Coverage: It is always nice to have your new employer pay for tail coverage if you leave. This can be quite expensive if you have to pay for it individually. If you don’t see it provided in your contract, use this as a negotiation point.
Tip: Make sure that you have tail coverage and that you don’t have to pay for it.
Tip #2: The most power you will ever have with your new employer is before you sign the agreement. Make sure you use this time to negotiate a contract that is fair to you, and protects you, too. Don’t hesitate to work with an attorney.
Bonuses:
These should be clearly spelled out. Learn the details and make sure they are achievable. Make sure you ask “Of your recent hires that are similar to me, how did their bonuses pay out?” Specifics not needed, but need to know how to plan for the future. Or could ask “What is it going to take for me to qualify for your bonus program?” Make sure you know how they are computed.
Types of Bonuses:
Staring bonus – gets paid after you start, encourages you to stay w the firm
Retention bonus – if you stay past a certain time period, you are paid for staying on longer (i.e. 1 year)
Sign on bonus – should be paid when you sign the contract but often won’t receive the money until you start or even after the first year
Production bonus – depends on how many patients you see per hour or how many RVU you bill etc. These are becoming more common.
Tip: if you don’t see bonuses offered in the contract this could be a negotiation point especially if your employer won’t negotiate on the salary
Negotiation Tips:
Commonly see failure to negotiate, unfortunately more commonly seen in the female population. Negotiations are expected and if you don’t you are leaving money behind.
Overall “he who has the gold makes the rules”. Remember you have gold too, we are currently in a physician shortage!
Know how in demand you are for your specialty and your location
He who speaks first loses. If you offer concrete terms the negotiator will latch on to that and the risk is that they may have been willing to offer more. Be sure to include pauses and don’t rush to fill the void, give your employer an opportunity to make you an offer
Negotiations should be done in person or at the very least over the phone. You need the opportunity to assess body language etc. during the negotiation period
Never agree on the spot. Take time to review, do research, review with your advisors. Don’t respond to time pressures by your employer.
Go in with a list of questions and then have a second list of your priorities that perhaps can be improved upon in your favor to “sweeten the deal”
Use role play or mental rehearsal to prepare yourself for the negotiation.
Your negotiation period is the honeymoon phase so make the most of it!