This is a cautionary tale, as well as an informative one. I was asked to take a look at the compensation program of a Federally Qualified Health Center (FQHC), and read the report of the consultant who generated it, which of course I agreed to do (who doesn’t want to see what the competition does, whether you can bill for it or not?)
While I’m not fond of the approach this consultant took toward the program design, that isn’t really the point. What was the point is what was in the report, but not currently known to the Board, management or the human resources staff of the FQHC — that the base wage and salary ranges were based on competitive total cash compensation, that is, the sum of base pay and bonuses, not just base pay.
The consultant had taken an approach that the organization’s philosophy should be to be competitive in a “total cash compensation” context. This wasn’t hidden, it was right in the consultant’s assumptions, stated up front, but it wasn’t explained beyond the statement that doing so would allow the FQHC to be more competitive — the implication that it would result in a significantly higher cost structure was not mentioned. I had been concerned that the pay ranges looked awfully high for a comparable sized FQHC at the senior management level (about 50% higher than my initial recommendation would have been, without considering any unknown conditions), and honestly, quite low at the entry level. The design just looked odd for an FQHC, but it made perfectly good sense once I understood where the consultant was coming from.
The program design used primarily hospital data, in fact, there didn’t appear to be any FQHC-specific data at all. We already know that hospitals pay more than FQHCs for most positions (FQHC compensation is typically around the 25th percentile of hospital pay), but they also are fond of bonuses, sometimes significant ones, particularly at senior management levels, something that FQHCs are definitely NOT fond of. Our research suggests that only about a third of FQHCs pay bonuses to their CEOs, certainly less than half — it is definitely not a common practice for the rest of staff.
My brief summary noted the lack of FQHC data, some other design concerns, and the fact that the structure that looked a little misaligned to an FQHC business model. I did take a moment to point out the total cash compensation pay philosophy, because it was definitely unusual in this setting, and asked if the organization was aware that it was how they were paying employees. The resounding answer? No. They didn’t know. The Board didn’t know. Senior Management didn’t know. HR didn’t know. Should they have? Well, to be fair, it was in the report, and the report was less than two years old at the time. Right in the front. Right in the assumptions. Yes, they should have known, but they didn’t… which means either the consultant didn’t emphasize it enough, or the FQHC wasn’t paying attention. Was it discussed prior to the project? Clearly the Board did not knowingly approve a total cash compensation philosophy. I don’t know if this FQHC does pay bonuses, but I’m pretty sure that layering bonuses on top of base pay that already includes bonuses was probably not going to come off well.
This should not be taken as a criticism of the consultant. The assumptions and methodology were clearly laid out, and no one knows how much time the consultant spent explaining things to the client, and whether I agree with them or not isn’t relevant. Frequently I wonder myself if I’ve explained things enough. The moral of the story also isn’t whether or not you should have a total cash compensation base pay structure, its that you really should know if you do or don’t have one.