Compensation is often raised as a key tool that can either aid or hinder the attraction and retention of executive talent within not-for-profits (NFP). With the proper compensation design, and the provision of additional incentives, NFP boards can easily increase their success in “catching” the right people.
What amount is fair?
A good starting point before filling any key executive position is to obtain an assessment of what the market is currently paying individuals in similar roles and similar organizations. NFPs should compare themselves to other NFPs that are similar in size and in a similar type of industry if possible. Easy indicators for NFP size are elements such as annual revenue/donation levels, total assets and overall staff size.
When comparing roles, organizations should go beyond the job titles and look at job descriptions if available. This is especially the case with smaller organizations where many responsibilities can often be rolled into one position. Overall, comparison roles should be similar in scope of control, level of responsibility and overall job expectations.
What can we afford?
When searching for talent, boards of NFPs need to be realistic with their prospects. Conducting a reasonable assessment of what your organization can afford is a good second step. Understanding what you can afford enables your board to determine where in the compensation range they are able to target. Likewise, if an organization has not initially budgeted what the market is paying, it allows boards to strategize on how they will find the additional dollars that will get compensation to the previously assessed fair market level.
What is the purpose of the compensation elements?
A strong executive compensation design includes an incentive level that comprises the majority of its overall opportunity. All too often, NFP compensation mirrors the compensation design of the public sector that has the lion’s share of its value rooted in the base salary component.
Consider what the purpose of each design element is and what the resulting behaviour will be. Normally a base salary is meant to provide a secure competitive base of cash compensation and is awarded to an executive for the completion or maintenance of the base responsibilities associated with the job. However, regardless of the sector, the majority of executives are not only expected to maintain an organization but also to improve and grow it as well.
An approach that is fair to both the executive and the stakeholders is one that places less emphasis on the maintenance aspect of the executive role and more on the overall improvement and growth expectations. Implementing a strong performance management plan and offering a larger proportion of the executive compensation in incentive pay, enables boards to align compensation levels to actual performance and improvements achieved.
If components of the performance expectations are tied to financial growth or savings, boards effectively tie compensation to the expectations and therefore have them self-funded through the additional realized resources.
What else can we offer?
NFP organizations need to understand that there are other elements that boards can offer. The board should be responsible for the provision of mentorship services for key executives, and they should also be open to furthering this mentorship role through the provision of introductions and opportunities. Ambitious executives will most certainly appreciate opportunities to attend additional community events and be introduced to notable business and community leaders.
The provision of additional exposure is definitely alluring to ambitious executives and, therefore, the provision of a national or wide-based campaign or program could be alluring to potential executives because of the exposure, networking and development opportunities it can provide.
Improving the probability for success
If it is determined that the compensation is not sufficient as an attractive consideration, your board can easily choose other elements that can increase the probability for success.
Offering a progressive performance management plan with mutually beneficial expectations is a good way to increase the compensation opportunity in a fair and manageable way. As well, compensation is not always the sole reason for accepting an executive position, therefore, board members need to be open to providing additional support to ambitious individuals who would appreciate your board providing non-compensation elements such as exposure to influential individuals who could also provide additional opportunities in the future.
Brad Kelly is director for Global Governance Advisors (brad.kelly@ggovernanceadvisors.com or www.ggovernanceadvisors.com).
