FQHC CEO Compensation Trends 2015 – Governance Still an Issue

Salaries for FQHC Chief Executives increased four percent (4.0%) from 2013, and the four year (2011 – 2105) annual rate of increase is just under 2.9%.  Female CEOs continue to have a higher average salary than men ($162,437 vs. 153,431), and the female CEOs in the largest revenue group (> $40 mm) earn an average of 10.4% more than their male counterparts.  These are among the findings from Merces Consulting Group’s 2015 Chief Executive Officer Compensation in Federally-Qualified Health Centers Survey, the fourth edition of this study, which has received participation of at least ten percent of all FQHC CEOs since its inception in 2011.

One hundred twenty four (124) health centers, from 39 states, Puerto Rico and the Virgin Islands participated in the 2015 version of the survey.  While overall participation has remained generally constant, the number of larger health centers increased, prompting the creation of a new revenue analysis category, “$40 million and over.”

The largest percentage increases in base salaries were among the smallest (< $5 mm) and largest (> $20 mm) health centers.  Bonuses continue to be a small part of the total compensation package; an average bonus payout of about 7.5% in the 31% of health centers paying a bonus means that bonus compensation makes up less than 2.5% of the total cash compensation package among the participants.  Bonus-eligible CEOs do have a significantly higher average base salary, but this is more a function of bonus programs occurring more often in larger health centers.

About two-thirds of the CEOs have an employment contract, and base salaries tend to be higher for those with contracts than those without, about 23% more and consistent across all revenue categories.  About 20% of health centers maintain a supplemental or deferred compensation program in addition to the regular employee program.  About fifteen percent (15%) have do not have a retirement program of any kind.

Governance issues remain a significant concern.  While the number of health centers reporting having a board-adopted compensation philosophy increased to 58% (from 46%), nearly a fifth of the health centers (19%) reported that the full board of directors did not approve their CEO’s salary.  Only about 10% of the participants reported practices indicative of “best practice” CEO compensation governance, the same as last year.   The number of organizations reporting that internal staff conducted the research for CEO compensation recommendations increased to 40%, a troubling statistic given the inherent conflict of interest (real or potential) that arises from this approach.  Another serious concern is that more than a quarter of the participants reported that the determination of incentive payouts was either mainly, or in whole, discretionary.

A new item in the 2015 questionnaire asked “does the board follow processes to establish the ‘rebuttable presumption?,'” a reference to the IRS approved methodology for establishing the presumption that compensation is reasonable.  More than 90% of health centers follow this procedure, according to their Form 990 (Part V, Item 15), however, in this survey only 34% reported they followed it; 19% said they did not, and 47% reported that they did not know.  This disconnection with what is being reported on the Form 990 raises questions about the Form 990 responses, as well as a potential lack of understanding about this critical provision relating to non-profit organizations.

Participants in the Merces FQHC CEO Compensation Survey receive a copy of the full report at no charge.  For more information, or to order a copy of the report for $99, contact Merces at research@mercesconsulting.com.  For further information on best practice CEO compensation governance, contact Ed Ura at ebura@mercesconsulting.com.

 

About Edmund B. Ura

Edmund B. Ura, MAIR, JD, works with governing boards, executives and human resources staff to develop methodologies for ensuring fair and equitable compensation programs that support achievement of organizations' missions. Contact Ed at ebura@mercesconsulting.com.
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