IRS Form 990 — common sense says an FQHC should disclose more rather than less

When it comes to compensation, especially executive compensation, a frightening number of Federally Qualified Health Centers (FQHC) are about a hundred feet up on a tight-rope, without a net, and not wearing any underwear.  It really doesn’t matter now whether the executives at Manatee County (FL) Rural Health are actually paid reasonably or competitively, because the media got hold of their publicly available information and shared it with the world with only the context that made it “a shocking story.”  FQHC Boards and executives should take a long look at their own reporting and disclosure, and make sure that they don’t up the next victim of a reporter’s quest for “the truth.”

A writer for the Bradenton Times following the story from the beginning is doing about what you’d expect — keeping the story alive by maintaining the specter of potential wrong-doing even after an independent expert concluded that the compensation was reasonable.  Of course the big problem here was that at the beginning the organization didn’t have the answers that could have stopped the story in its tracks.

That’s the difference between “compliance” and “common sense.”  Many argue that the best approach to say as little as possible; I believe that approach just doesn’t make sense.  Context is everything, and if you don’t provide the context, someone else will.  Remember that to at least one person, every salary is “too high.”  Whether it’s a reporter, an organization considering giving you a grant, or heaven forbid, the IRS, someone will scrutinize the information you provide.

Those who complete the Form 990 are encouraged to explain the process by which they determine executive compensation, and most are relatively vague, with some even looking like they’re trying to hide something.  If it’s true, why couldn’t you spend a little extra toner and answer this way:

“All of our employees, including our executives, are paid according to a structured program that takes into account the contribution of their jobs to the health center, the pay of employees in comparable organizations, and their individual performance.  The philosophy of our FQHC is to provide compensation opportunities that allow us to attract, retain and motivate the skilled employees we need to provide superior care to our patients, and limits compensation so that it cannot become excessive, or out of line with the care employees can provide to our patients.  The program was developed and is maintained by an independent outside expert [insert name here].  Each year, the Compensation Committee of the Board of the health center, composed of independent directors without management participation, reviews the report of the outside firm, measures the performance of the health center and the top executive against pre-established standards, and determines whether adjustments are justified.”

The unfortunate reality is that few of the people who will criticize your compensation understand either the labor market or the needs of a migrant/community health center.  Because of this, compensation opportunities must be established appropriately and explained clearly.  Compensation decisions must be made in an environment that takes into account not just facts, but perceptions.  Failure to properly do so may mean that you’ll be seen as wrong — even when you’re really right.