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Bark’s Bytes #38 | Fixing a Myth

Written by John Wayne Barker on . Posted in Barks Bytes.

Published May 31, 2019

A long-standing myth was again part of the 2019 legislative discussions related to increasing Day Training and Habilitation (DT&H) rates. It appears that some decision makers continue to believe that the compensation for the highest paid employee in DT&H programs is excessive and that encumbering (a limitation on the use of funding) any rate increase is needed to ensure new funding goes to Direct Support Professional (DSP) wages.

Because this posting discusses compensation, I want to be very clear that MOHR did not endorse, assist, or comment on this study and posting in any manner. In addition, it is important that the reader understand the sources of my data that included:

  1. 101 of the 106 MOHR members (represents 95.3% of the current membership) had useful 2015 tax returns posted to Guidestar (a national organization that advances transparency in non-profits). Program revenue appears in lines 8 – 10, total combined salaries in line 15, and total expenses in line 18 of these tax returns.
  2. Part VII of these tax returns requires the reporting of any compensation exceeding $100,000. Of the 101 tax forms included in this study, 77 had this information. I contacted the other 24 MOHR members and requested they self-report their highest paid position in 2015 and 16 responded with this information. The responses of data from these 93 sources represent a total of 87.7% of the current membership.
  3. Average DSP wage, by region and statewide, as reported in the 2015 MOHR Wage Survey (62 respondents).
  4. Minnesota Council of Nonprofits (MCN) 2016 Wage Survey Report (569 respondents).

It is likely that most of my readers are not statisticians and, as this subject is not my specialty, I will not be offering a statistical analysis of this study. Also, as this is a statewide issue, I will not be reporting the results by MOHR region or nonprofit and my data will not be shared with any other party unless I need to validate its accuracy with decision makers. Now to my findings:

  1. Average annual program revenue was $4,414,728 with a range of $147,043 to $71,354,194.
  2. Average combined staff salaries was $3,173,467 (71.88% of program revenue) with a range of $96,666 to $50,258,051.
  3. Average compensation of the highest paid position at DT&H programs was $112,211 with a range of $36,200 to $315,428.
  4. Average percent of the highest paid position to program revenue was 6.31% with a range of 0.23% to 23.26%.
  5. Average percent of the highest paid position to total salaries was 9.04% with a range of 0.32% to 35.18%.
  6. Average ratio of DSP wage to average highest paid position was 1 to 3.87 with a range of 0.57 to 12.53.

So what do I believe these findings mean?

  • There is a significant range in program revenues and combined staff salaries making “one-size” encumbrances and wage reporting problematic.
  • Although the average combined staff salaries was 71.88% of annual program revenue, too high of an encumbrance will limit providers in using new dollars to pay for real operational expenses that have increased.
  • With an average of $4M in program revenue, the average highest paid position at day programs is $112,211 and only 2.6% higher than the average salary of $109,279 paid to Executive Directors of MCN non-profit members with $2M – $5M in revenues; suggesting that, as a group of non-profits, executive compensation at DT&H programs is reasonable to the market.
  • The metric of highest paid position as a percentage of program revenue and/or total salaries is not useful given the extreme range of revenues across the 93 respondents.
  • With a 1 to 3.87 ratio between the average DSP wage and the average highest paid position at DT&H programs compared to a ratio of 1 to 3.97 between a Special Services Aide in the Human Services Activity area paid $13.29 per hour and the average Executive Director salary reported by MCN, it is clear that MOHR members, as a group, are not paying excessive compensation to their highest paid employee. Even more striking, a 2017 Forbes article had the ratio of for-profits at 1 to a range of 100 to 400 and had the healthcare sector ratio at 1 to 275.

Are there high outliers among the 93 respondents when it comes to executive compensation? Absolutely, and, although it was usually related to the size of annual budget and geographic location, the highest salary was not paid by a program in the top ten of revenues. There are also low outliers, some making little more than their DSPs, and they outnumber the high outliers by quite a margin. I would encourage my colleagues to review their compensation metrics against these findings to see if any adjustments are warranted.

Since the 2015 facts show DT&H providers are not paying an excessive amount on executive compensation then it stands to reason we are spending these dollars on DSP wages and other essential operating costs. That being true, why are we imposing prescriptive encumbrance language and wage reporting on ALL DT&H programs based on a myth that we are not using rate increases to raise DSP wages?  And truly, after issuing a useless 2019 waiver transportation report, why would anyone believe that the Department of Human Services can accurately complete a “competitive wage analysis” or render a valid opinion based on provider wage reports that have yet to be defined?  Perhaps we should return to a cost plus reimbursement system if we are going to be micro-managed?

I understand that the theme of the 2019 legislation was to provide a “competitive workforce factor” and it felt right for decision makers to make sure it was used in that manner. Still, the 7% rate reduction last year was not taken away by encumbrance and should have been restored in the same manner so providers can decide what is best for their operations. Let’s stop requiring a fix for a problem that does not exist and adding more burdensome reporting to private sector providers. Instead, let’s pass rate increases without any encumbrance like is done for state-operated programs which provide the same services and already enjoy preferential treatment in so many other ways.