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Important Validations of Best Practice Approaches to Compensation

Important Validations of Best Practice Approaches to Compensation

At Merces, we are advocates of “best practice” compensation programs, and I have written extensively here on the methods and techniques that we feel are essential to proper compensation management.  We are adamant about doing things the right way — doing what is best for the organization, and what is best for its employees.  It may sometimes come off as a little preachy, and maybe a little arrogant, but we really believe that doing the right thing is the right thing.  Whether you do it on your own, hire us, or hire someone else isn’t really the point.  What matters is that you take the time to pay people the right way, because that is essential for your sustainability as an organization, and your ability to provide your services.

In the last few days, we have received feedback from two of our clients that validates the elements of best practice compensation programs that we have advocated here and in our work over the last 23 years.

Executive Compensation Program

One client recently underwent their first Health Resources Services Administration (HRSA) Operational Assessment visit.  From our client:

When the site review team presented their findings, they commended our Board of Directors on the system of executive compensation that they have put into place, and said they wished every health center had such a system.

The Board, and particularly the Compensation Committee, deserves the credit for their continued management of the program, which includes:

  • a Board-adopted Compensation Philosophy;
  • governance through a Board Compensation Committee composed of appropriate members (including consumer members), with Committee recommendations approved by the full Board;
  • a thorough and continually updated job description for the position of CEO;
  • a salary range, established each year, based on reliable competitive market data, prepared by an Independent Compensation Consultant;
  • performance appraisal conducted in a timely manner, fairly, and based on the elements of the job description;
  • base compensation consistent with the salary range and the documented performance of the CEO; and
  • thorough, complete and contemporaneous documentation of the discussions and decisions made.

We have worked with this client for a number of years, and have been impressed with the dedication of the Board and members of the Committee, which took our recommendations seriously; while we helped with the design and implementation, no program works without the on-going and active work of the Board of Directors.

Salary Administration Program

Yesterday, another health center client let us know that they had recently undergone an extensive and exhausting audit by the IRS.  The organization received a clean bill of health, with no exceptions or recommendations.  While we were happy to hear that, what was really exciting to us was to hear that a thirty-year veteran IRS auditor told them that he had never seen a compensation program that, from the CEO to the entry-level jobs, was so well designed and managed, and that he wished every organization he audited made it so easy on him.

The reason that this program was so well received was simple — it had all the elements that make it not only fair, equitable and effective, but defensible:

  • a formal internal equity approach that establishes pay opportunities for jobs based on the value the jobs have to the organization, without regard to who is in the job;
  • links to the labor market to ensure that the program is competitive and that the organization can attract, retain and motivate the employees needed to carry out the mission; and
  • a method for measuring the contributions of each employees, so that they are paid based on their performance, without consideration of race, gender or any other irrelevant quality.

This is a program that has been in place for nearly 20 years.

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Best practices are best practices for a reason — they are the methods that are proven, over time, to ensure that organizations operate the right way.  Validation isn’t necessary, but it should certainly feel good to any organization that follows best practices to know that their efforts to do the right thing will be noticed and appreciated by those whose business it is to examine they way they operate.

For more information, feel free to contact me at ebura@mercesconsulting.com, or visit our website at www.mercesconsulting.com.

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