Every year, across the country, hundreds of FQHCs make the fundamental mistake of having internal staff provide the information that will be used in the determination of the compensation of their Chief Executive Officers. To be more specific, if our research projects to the entire population of FQHCs, the Boards of Directors of roughly 400 FQHCs (about a third) have their internal staff (typically either from Finance or Human Resources) provide them with the research they need to establish the pay of their CEO. This fundamental governance problem is one of the first that should be addressed as FQHCs move toward best practice governance of CEO compensation.
Far from an indictment of the quality of internal staff, this situation is one in which it is all about appearances. Look at this not from the perspective of someone inside the organization, who knows the integrity of the staff people involved, but from that of someone who doesn’t know the people involved, or is perhaps looking for evidence of a conspiracy. From that point of view, it is obvious that the absolute first thought someone will have, when finding out that an employee is effectively making pay recommendations for his or her boss, is to wonder whether that boss has influenced the recommendations, or perhaps that the subordinate is trying to curry favor. In fact, from that perspective, it is almost hard not to imagine that is what is taking place.
Beyond what appearances might be, there is certainly evidence from the media that from time to time that there has been collusion between a human resources professional and the CEO. It’s not just the fact that sometimes where there’s smoke, there’s fire… in this case it’s almost a matter of assuming there’s going to be smoke, whether there is or not.
What can internal staff do? Provide the Board with copies of the published compensation surveys the health center uses as a resource for determining pay for their staff, if the Board requests it. Inform the Board of other surveys, or other sources of information, or help the Board understand how to locate an Independent Compensation Consultant. Always qualify assistance with an explanation that there may be other, or better, sources of information, and that the Board should not rely solely on what the staff provides. Internal staff, through the CEO, should already be making sure that the Board understands how other employees are compensated, and this may be something that helps the Board make decisions that are internally consistent.
It might not seem fair, but like many other aspects of good governance, strict adherence to processes designed to ensure that Board decisions are made appropriately is the best way to go.