Following Content Also Features as a Guest Blog Post from Prudent Plastic Surgeon
For those physicians in your last year of training, job season is coming up in a hurry. Soon, you will be negotiating your first contract!
Soon, you will be interviewing for and evaluating potential job opportunities. And, for the first time, you will be in a position to actually negotiate your contract. This is an awesome thing, but it’s also really scary since it will have such a massive impact on your financial future and you have no idea what you are doing. Until now that is!
I just graduated in July 2020 (less than 4 months from the time of writing this post) which means that I found a job and the negotiated and signed a contract successfully. I’m not saying my contract is perfect. But it fits me really, really well. And that’s what you want…a contract that fits your goals, circumstances, and, yes, well-being.
So, I’m going to share all of the things that I wish I had known about successfully negotiating a contract!
[Even if you are not about to negotiate your first contract, I’m sure that this post will help you! If you are a trainee, you will eventually be negotiating a contract. Even if you are a mid-career attending, is there anything you would like to change about your contract? I bet there is at least something!]
How does successfully negotiating your contract set the stage for wealth building?
Your wealth is what you make (your income) minus what you spend (your expenses). You can therefore increase your wealth in two broad ways: increase your income or minimize your expenses.
Your expenses are completely in your control. Save 20-30% of your income and invest wisely in broadly diversified, low cost index funds or well vetted real estate investments and you will put yourself in a great position.
Your income is also in your control, but perhaps to a lesser degree. You can start a side gig (check out this list of physician side gigs) ormake real estate investing an active pursuit, among other options. However, for most physicians, their work as a doctor will represent the large majority or all of their income.
Your doctor income is generally not very much under your control, with one exception. This big exception is when you are negotiating your contract, whether for the first time or for a renewal.
Contract negotiation is the time when you set the foundation for what you will make and how you will make it. There is usually some wiggle room within the contract to make more or less over time. However, you largely set the scale of your physician income as soon as you sign on the dotted line.
So, let’s talk the steps to negotiating the best contract for optimal financial and personal well-being!
1. Make your negotiation personal
It’s about your situation and not anyone else’s.
Everyone will prioritize different things in their contracts. Your contract is an individual competition. You are not trying to get the best contract compared to your peers or anything like that. You want the best contract for you. Focus internally and ask how you could alter things to be the best for you.
2. Know your value
This may be the best single piece of advice that I received regarding contract negotiation. I heard it from a number of my mentors – Nolan Karp, Vishal Thanik, Katie Weichman, Rod Rohrich – all incredible plastic surgeons.
It sounds so obvious that it almost doesn’t seem helpful at first.
But really, this is going to be the crux of your negotiation. You can be sure that the administrators negotiating the contract with you know exactly how much value the average physician in your position brings. You had better know that as well…and then know why you are way more valuable than the average physician in your field.
But how do you find out your value in terms of compensation?
It can be a little intimidating to go about finding out this numeric value. We never really talk about money with our colleagues or mentors. We feel embarrassed. But we shouldn’t.
Here is how you find your value. I did all of these things:
- Ask your mentors how much they make and how their contract is structured
- Ask recent graduates in your field how much they make and how things went negotiating their contract
- Find out how many relative value units (RVUs) the average physician in your field does annually. Then find the average $/RVU value in your field (It’s $65/RVU for plastic surgeons). Multiple these two numbers and you have a good sense of what your annual salary should be.
- Make a list of the unique skills that you have that make you more valuable than an average physician in your field. For me, it was my training, research abilities, and even my ability to do robotic surgeries.
Once you know your value, you have a reference to negotiate with. You know what fair compensation is. Once you are in that range in negotiating your contract, you can get further into the details.
3. Pick how you would like to make your money – base versus incentives
I’ll give an example from negotiating my contract.
Like most physicians, I am highly motivated by incentives. I will chase the carrot forever. But what I realized is that this endless pursuit ultimately frustrated me and contributed to my burn out. Therefore, I sought a contract with minimally incentive-based pay.
I negotiated a contract with a base salary that represented 96% of my total salary. The remaining 4% was performance-based.
For a surgeon, this is not a typical arrangement
Most contracts are performance-based using the amount of relative value units (RVUs) generated by the surgeon. This leads to RVU chasing and, for me, takes the focus off of the patient and the work that I have a passion for.
So, I was very happy to take a base salary that paid me a very good amount of money that I could grow through smart investing and live very comfortably. This allows me to focus on the portions of my job that I love the most, patient care and operating, without worrying about patient insurance type, optimizing reimbursement, or making sure I reach and exceed a certain RVU goal, lest I see my salary decrease if I don’t meet it.
Now I understand that many people may desire a strong incentive component in their salary. This is totally fine as long as it aligns with what will make you the most fulfilled, decrease risk of burnout, and allow you to pursue financial well-being.
4. Create the ability to safely move on if things don’t work out
Another aspect of contract negotiation that I feel is particularly important is optimizing your potential exit.
You never want to go into a job thinking that it will not work out. But the reality is that these arrangements often do not go as intended. In the case that you find yourself unhappy with things, you want to make sure that you can make changes that improve your life without restriction.
The most important terms in this regard are your contract length and the existence or nature of your non-compete clause.
Keep contract length at 3 years or less
I negotiated a relatively short contract (3 years). I feel that this amount of time allows for both parties to make a good faith effort at making the relationship work, even if there are bumps in the road.
After 3 years, I will be free to re-negotiate according to the value that I bring to my employer at that point or to move on. I plan to be there for a long time but it’s nice to know that you are not trapped. That’s another feeling that can and will lead to burnout.
Aggressively negotiate a favorable non-compete clause
The non-compete clause is a big one. For those unfamiliar, a non-compete clause essentially says in varying terms that if you leave this job you cannot work within X miles of the job site for a certain length of times, usually 1-3 years.
If you are like me and moved to your hometown to raise your family, you would not want a contract that tells you to work at least 50 miles away if the relationship does not pan out.
If you are moving somewhere with a temporary plan or would not stay in that city without being at that job, then a non-compete may not be as big of a deal to you. But who knows, maybe in time you find that you love this geographic area and want to stay even after leaving your current job situation.
The least restrictive non-compete clause is obviously to your greatest advantage. Many will tell you that it is a standard part of the contract, however everything is negotiable. Maybe you even agree to take less money to reduce or eliminate the constraints of the non-compete clause.
I found my particular opportunity so appealing because the group that I was joining had negotiated for no non-compete clauses in their contracts. I used their precedent to remove the clause from my contract.
5. Learn your benefits, they are part of your salary too!
Another overlooked aspect of contract negotiation is making sure that you have a comprehensive understanding of the benefits offered by your employer.
Your benefits package makes the difference in tens of thousands of dollars but most people don’t even learn about them until after signing the contract. Ask to speak with a benefits representative during your interview or on the phone.
Find out what tax protected retirement accounts are offered and specifically if the employer offers a match. Let’s say the employer will contribute up to $22,800 to a retirement account like mine. That’s $22,800 additional money that will grow tax free via compound interest that is basically a part of your contract. As an aside, make certain that you contribute enough to your retirement account to trigger the employer match. Failing to do so is leaving money at the negotiating table.
Also find out if your employer offers a Health Savings Account (HSA). I won’t go into detail about HSAs here, but in brief, it is one of the very few triple tax free investment vehicles and is a nice advantage if they have one (my employer does not).
Learn if your employer offers group malpractice, disability, or life insurance and how much it covers. This will reduce or eliminate the need to buy expensive individual policies on your own dime. The malpractice insurance that my group offers is so strong that I did not need an individual policy. The life insurance, however, was minimal and no group disability is offered so I did purchase these on my own.
6. The deal is in the details
If you are joining a private practice or partnership, make sure that the details of your partnership track are completely spelled out to the last detail in your contract.
Find out how long it will take to become partner. What is the buy-in? How do the partners split profits? Do they split them evenly or based on seniority?
You don’t want to go into a situation with the implication that you will be made partner in 2 years to find out that it actually will take 7 years and require a significant buy-in. Again, this can lead to mistrust, job and financial dissatisfaction, and burn out.
This was not an issue with the hospital-based job that I took but was something that I made sure was very clear with other potential opportunities.
7. If it’s not in the contract, it doesn’t count!
This ties into another really important point. Anything not written and signed in your contract does not count. No handshake agreements, no verbal promises, nothing.
If something is important to you, make sure it is written clear in the contract. If they balk at doing this, they either promised you something that they can’t guarantee or are not operating in good faith.
8. Don’t be shy, just ask!
The great thing about contracts is that really nothing is off limits in negotiation. As long as your are reasonable and respectful, the worst that the other side can say is “no”. So just ask.
I was told “no” for a couple of the “asks” in my contract. But rather than get upset, I just used those “no’s” to help get a “yes” to two in other parts of my contract.
9. Crowdsource your negotiations
Lastly, have a ton of people read your contract and get their advice and opinions. You don’t need to listen to everything or follow each piece of advice, but the more eyes on it the better. You can even send me your contract, I’d be happy to look it over.
Don’t be bashful to share the specifics of your contract and encourage others to talk openly about their contract. This will only help all of us to negotiate the best situations.
And hire a lawyer to review the contract. By the end of my negotiations, I had so many eyeballs, notably my own, review the contract so many times that the lawyer didn’t have a ton to add. But it still made me feel more reassured and was the final piece of the puzzle before signing.
And then…you celebrate!
Once you sign your contract, celebrate! Not only did you just sign a contract to live your dream and be a physician, helping others. But you just signed your dream contract because you took the time to really think it through and make it the best arrangement for both sides!
Remember, your contract negotiation is your opportunity to set the stage for your financial and personal success. Don’t miss the opportunity to ask for what you want. You worked extremely hard to get to this point and offer very specialized skills that help people.
I absolutely encourage you to know your value (and your values) and use your contract negotiation period to create the best opportunity for you out in the open market!
But remember, a high salary does not make you wealthy
That high salary is like seed money to grow your wealth. If you just throw it at fancy cars, homes, and toys, you’ll be just as broke as you are now.
So now that you have negotiated a contract that make you a high-income earner:
- Limit your spending so you create a savings rate of at least 20% to invest
- Create a written financial plan (here’s mine) to guide your investments
- Learn to invest wisely in the stock market
- Make real estate investing the key to your financial freedom
- Develop the habits that will make your financially successful
Blog Post Excerpt from Prudent Plastic Surgeon.