Help for the FQHC Board in Managing CEO Compensation — Bring on the B.A.M.

The typical Federally Qualified Health Center (FQHC) Board of Directors has only one employee to manage – its Chief Executive Officer.  Many not-for-profit Directors have little to no experience in managing executive pay and performance.  In FQHCs, where more than half of the Directors must be service users, many Board members may have no business experience at all.  It is essential that structures are in place to ensure constructive performance management, that executive compensation is based on appropriate information, and that incentive compensation arrangements have as little “discretion” as possible.

A “Board Activity Monitor” (BAM) can be a key role held by a member of the FQHC Board who ensures that the CEO’s performance is monitored during the year, and that there are no surprises at the end of the year.  Whether a member of an established Compensation Committee, or an “at large” position, the job of the BAM is to review Board actions as they occur to determine if they change the content of the top staff executive’s position description, the CEO’s goals and objectives for the year, or the performance measures that might be in use in an incentive plan.  Situations and circumstances change during the year, and the time to deal with them is when they happen, not at performance review time.

In a recent client assignment, I sat in with the Board as they conducted the CEO’s performance appraisal.  One of the newer Board members, on seeing the summary of performance, noted that fewer than 30% of the objectives had been achieved, and suggested that was evidence there should be no pay increase for the next year, and certainly no incentive payment – after all, according to the plan itself, nothing was owed at all.  In response, the Chairman noted that early in the year, the Board decided it was time for a new facility – over the course of several months, the CEO completely changed priorities, had engaged an architect and completed the designs, located and purchased a site, found donors to pay the entire cost of the construction, and had the construction contracts in place.  In short, the Board considered it a miracle, and the Executive Committee had been considering an incentive far in excess of the target. Without a BAM, no one had though to make any changes to the objectives or the incentive plan measures.

The BAM should always be armed with a copy of the current CEO job description, the goals and objectives set for the CEO for the year, and a copy of the incentive plan document, including all of the performance measures being used.  Say, for example, that most of the FQHC’s objectives for the current year are operational – improving patient services, increasing outreach and patient education, bringing new providers on board, etc.  Mid-way through the year, it become apparent that the FQHC would  have to implement an Electronic Health Records (EHR) program within a few short months in order to make progress toward its meaningful use objectives. On the recommendation of the CEO, the Board determines it will need to reallocate parts of its budget and directs the CEO to focus all its efforts on the EHR project.

As the Board is considering the actions to take, the BAM might make several observations, such as the following: 1) The CEO’s job description has never included any technology initiatives, and the current CEO has no background in the area, so outside consultants or a new high-level IT professional will need to be brought on;  2) One of the CEO’s main objectives for the year was to increase outreach, and with productivity hampered by EHR implementation, outreach activities might bring in patients that the FQHC could not effectively treat; 3) The CEO and provider incentive plan is based on productivity assumptions that don’t include the impact of EHR.

If the Board decides to move ahead with EHR mid-year, the BAM will immediately call for changes:

1) The IT function will need to be reconsidered, with the CEO given responsibility and accountability for restructuring to meet the new EHR needs
2) The budget will need to be revised, and all measures of “financial success” changed to reflect the new priorities
3) Any performance objectives that have not yet been achieved will need to be revised, and new performance outcomes prepared, to reflect the change in direction
4) The costs related to EHR implementation will need to be identified as “extraordinary expenses” and potentially not included in incentive plan calculations
5) New incentive plan objectives, related to success in the EHR implementation efforts, should be added to the incentive plan.

Implementing a BAM program for your FQHC does not require resolutions or formal Board actions, just the practical and common sense decision to put someone in charge of making sure there are no surprises at the end of the year.  It will be time and effort well spent.