2012 FQHC Compensation Resolutions

We shouldn’t need January 1st as an excuse to work on improving compensation programs, and honestly, any change that was supposed to go into effect on January 1st should have been finalized months ago. Effective management of a Federally Qualified Health Center requires consistent monitoring of its largest expense — employee compensation.  Instead of dwelling on what you didn’t do and when you should have done things, let’s focus instead on what you should do starting to do, well, yesterday:

1. Make sure your pay ranges are up-to-date

A pay range won’t keep you competitive if it’s based on old data.  An FQHC should update its ranges should be updated no less than every other year. It’s better to do it every year. If you work with an outside firm, call or send an email and ask them to get to work. If you do it internally, make sure you have the most recent versions of the surveys you use, and get to work yourself! The best time to plan for an adjustment to ranges is right after your latest published survey comes out. The NACHC compensation survey usually comes out in late May. Your state or regional PCA survey will typically come out at the same time each year, and local employers associations will also be on an annual schedule. As soon as you get the data, do your analyses. You can always change your projections later in the year if the market seems to be moving faster or slower than expected. Remember to project all of your market data to the middle of the year — July 1 for calendar year employers, or the middle of the year you use when administering pay. This will ensure that you’re competitive “on average” the entire year. When you project your market data, be careful to use the right information. You want to know how the “market” moved, not budgets for merit increases. Merit increase budgets are typically 1 to 1.5% higher than actual market movement – remember that people retire or otherwise depart, and are usually replaced by new employees at lower rates. As a result, the actual market does not increase at the same rate as the average increase to employees who remain on the job.

If your FQHC is struggling financially and doesn’t feel it will be able to give raises this year, update your structure anyway! A pay structure is a reflection of reality. It tells you the truth and what you’re facing. While you may not give significant increases to your current employees, you’ll have a better understanding of what you’ll need to pay when you hire someone new (which you may need to do if you aren’t planning on giving any increases). Updating it annually will also keep you from having to explain why your next structure adjustment is so big. It’s amazing how much easier it is to explain two 2.5% increases instead of one 5.1% increase.

2. Check your pay grade assignments

Did any of your jobs change in any significant way over the last year? If you have a job evaluation plan, did you check to see if the changes will result in a grade increase? If you just use market data for grade placement, did you check to see whether you should be looking at different benchmarks? Look for clues that jobs may have changed: 1) If it’s a single-incumbent job and there was a termination, is the new employee more or less qualified? If so, the expectations for the new employee may be different. 2) Have there been any significant changes in the technology used? Technology, and the way it’s used, will frequently result in job changes. 3) Has there been a departmental re-organization? Just because a job title hasn’t changed, it doesn’t mean there haven’t been adjustments to the duties and responsibilities of the job.

3. Look out for pay inequities

A pay inequity occurs whenever an employee’s actual pay is out of line with his or her contribution to the organization. Whatever way you use to adjust pay, take the time to analyze where employees should be paid. Divide your ranges into parts that reflect different levels of performance. Those who are fully functioning on the job should be paid at or around the midpoint of the range; those new to the job or still developing should fall lower in the range and occasionally you’ll have employees whose performance is consistently beyond what you’d normally expect. Reserve part of the range for them. Now look at each person, and compare where they are to where they should be. Commit yourself to finding a way to get people to the right spot. If it means breaking your paradigm of giving everyone the same increase, or getting away from a merit matrix that isn’t working, more power to you.

4. Commit to improving your program this year.

Remember the three essentials for a fair and effective compensation program: 1) pay opportunities tied to the contribution of jobs to the organization, 2) ranges that reflect the competitive labor market, and 3) individual pay rates in line with individual contribution. If your current approach doesn’t include all three of those elements, consider adding them. IF you give everyone the same increase every year, consider making the change to a truly effective method instead. If your merit matrix doesn’t get an employee to the “competitive” part of the range in the right amount of time, adjust it, or scrap it altogether. If you don’t use a broad range of surveys, commit to identifying the ones that provide you the best information, and use them.

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If you need help with your New Year’s resolutions, let us know. Visit ElementOne, Inc. on the web.