Concerns Surrounding Non-Profit Executive Compensation

Executive compensation is a natural concern of many in the non-profit sector. A 2011 report from the Chronicle of Philanthropy highlighted that the median pay of executives in 132 surveyed charities and foundations increased 3.8% over the prior year. Three years later, Charity Navigator reported that the typical charity CEO’s compensation had increased just 2.6% over the prior year. The Charity Navigator report surmises that raises have been modest since the recession. However, the report also acknowledges that despite this overall trend, there are some non-profit leaders that earn “excessive” wages of more than $1 million. Factors involved in increasing executive pay levels include the following:

• Greater competition among non-profits to attract top talent.
• Difficultly in retaining staff, and a lack of internal candidates for some critical positions. 
• Nonprofits’ desires to lure corporate executives, as the finances of non-profits have become subject to greater government scrutiny.

In addition to higher pay, some non-profits compensate for the lack of stock options and other corporate extras in the sector by allowing flexible work time. Others even pay bonuses, once rare at non-profits.

In recent years, the Internal Revenue Service has begun examining executive compensation at non-profits with an eye toward uncovering potential abuse.

Understanding the need to recruit and retain quality staff has added to the concern over how to structure compensation policies & programs to be fair and competitive, without crossing the fiscally abusive line. Incentive plans and other innovative compensation & human resources practices are becoming critical elements in the organizational strategy of many non-profit organizations.

A previous Astronology® highlighted details to consider when developing a compensation plan for non-profit executives:

1. Rationale for developing plans

Surveyed non-profits indicated multiple reasons for creating new programs. More than half of the participants indicated their program objectives included the following:

• improve morale and/or employee relations;
• improve employee retention;
• link pay to performance / improve employee performance; and
• become more competitive in total compensation (i.e., cash compensation, recognition, and benefits).

2. Types of plans and performance measures

The most popular types of cash compensation and recognition programs implemented by the participants were bonuses, incentives, and non-cash recognition programs.

Productivity, financial, and quality measures were the performance criteria most often used as the basis for the respondents’ compensation awards under a variety of programs.

3. Budget and award amounts

The average variable compensation award payouts typically ranged from 20% - 30% of salary. In some organizations, the targeted payouts ranged from 10% - 20% of the salary range midpoint.

Interestingly, in Astron’s confidential database of non-profit organizations, target incentives levels are as follows:

• Staff / Non-Management: 5% - 10%
• Supervisory Staff: 5% - 15%
• Middle Management: 10% - 20%
• Senior Management: 15% - 30%
• Executive Management: 20% - 40%
• CEO: 30% - 50%

Beyond these details, following are guidelines to consider when implementing a new compensation plan:

1. Nonprofit organizations should first conduct an assessment to determine the appropriateness of innovative compensation to their cultures and organizations. This assessment should focus on the following:

• the objectives to be achieved through implementing an innovative compensation program,
• what motivates staff,
• the opinions and views of members, constituents, & volunteer leaders, and
• the financial resources available.

2. Any innovative compensation program should be viewed as part of a total approach to compensation and carefully integrated into the design of that program. A market analysis of current compensation levels related to the jobs in the organization should be conducted in the early stages of or prior to developing a program.

3. The innovative compensation program, especially management incentive programs that provide significant opportunities for financial rewards, should be clearly tied to performance. The program should demonstrate the achievement of overall organization objectives in finance, program, development, client service, membership, public affairs, government relations, community relations, and any other areas deemed important to the organization.

4. Organizations should consider pilot testing innovative compensation programs on a selected group of staff before introducing the programs to all staff. More than one innovative compensation program should be considered, especially in larger organizations. Many non-profit organizations have implemented at least two types of programs.

5. Innovative compensation programs should be well communicated to staff and used as a vehicle to announce the success of employees, teams, and the organization.

Is non-profit executive pay a concern for your organization? Is there some form of transparency in place to alleviate those concerns? Are you considering changing or have you recently changed your compensation plan? Please share your thoughts with Astronology®. We may feature your response in a future article!

Filling The Gap, Job Descriptions, Obama's Healthcare Plan, etc.

We're reading all the articles so you don't have to...

-BizTimes talks about Human Resources filling the gap with interim executives

-Vault has job descriptions. They're not as good as the ones we do at Astron Solutions.

-WebProNews says that Yahoo! is putting a new spin on the recruiting process by launching pay-per-candidate for their Yahoo! HotJobs

-Workforce Management talks about how an economic crisis is creating an opportunity for the Society for Human Resource Management (SHRM). "As companies slash payrolls and tighten their belts in other ways that squeeze employees, the association is trying to make itself indispensable to HR professionals."

-Lastly, the Chicago Sun-Times talks about President Barack Obama being pressed on healthcare during his ABC special by an Human Resources executive:

One questioner -- Marisa Milton, vice president of health care policy for the HR Policy Association, a public policy advocate for human resource executives -- said that "other industrialized nations provide coverage for all their residents" with "high quality care" without spending more money.

"A lot of those countries employ a different system than we do," the president said. "Almost all of them have what would be considered a single-payer system in which the government operates what is essentially a Medicare for all."

The president said he didn't think it wise to attempt to "completely change our system root and branch" since health care is one-sixth of the U.S. economy. It "would be hugely disruptive," he said, arguing that citizens would be forced to change their doctors and insurance plans "in a way I'm not prepared to go."

End-of-life issues were raised as well; right now it is estimated that nearly 30 percent of Medicare's annual $327 billion budget is spent on patients in their final year of life.

Jane Sturm told the story of her nearly 100-year-old mother, who was originally denied a pacemaker because of her age. She eventually got one, but only after seeking out another doctor.

"Outside the medical criteria," Sturm asked, "is there a consideration that can be given for a certain spirit & and quality of life?"

"I don't think that we can make judgments based on peoples' spirit," Obama said. "That would be a pretty subjective decision to be making. I think we have to have rules that say that we are going to provide good, quality care for all people.

"We're not going to solve every single one of these very difficult decisions at end of life," he said. "Ultimately that's going to be between physicians and patients."

Great Articles on a Great Day

Those who've gone outside in New York today know it was a beautiful day. Where here are some links to enjoy once you're done enjoying the weather...

Got some good stuff from the Boston Globe's Job Docs, the first article is about a couple of bad apples spoiling things for everyone at work: click here

Also from Job Docs, advice on whether it is appropriate to get calls for jobs--while at work: click here

Lastly from Job Docs, it's not just in the school yard anymore--job interview do overs: click here

From the Wall Street Journal, word that recruiting at business schools has dropped: click here

Also from the Journal, despite cutbacks in firms, they are still investing in developing future leaders: click here

Lastly from the Journal, an article making the case for executive education: click here

And our last article for the day, from Dice, 8 ways to keep your career moving while out of work (H/T Wendy): click here

The Financial World and the Job Market

It'll be interesting to see the fallout in the job market from the current financial crisis, but some effects are already seen...

The first article is from the New Jersey Law Journal and probably won't work for most of you...but the important part is just to read the title and then find a way to get your hands on the article: Pru Appeals in Suit Charging it Paid Off Plaintiffs' Lawyers: click here

Next, an interesting lesson from Yahoo! News via the AP on what can happen with mergers/takeovers and job layoffs as HP surprises Wall Street in this article: click here

(H/T to Wendy for those)

The Wall Street Journal (with a nice, new look) continues with an article sure to cause a little head scratching to most of America...the Executive job market is still healthy: click here and a video here

Next from the Journal is a very interesting article about trying to get Fannie Mae's and Freddie Mac's employees to stay as the mortgage giants go through some difficult times: click here

Going quickly to the Boston Globe's, Boston.com Monster.com HiringHub HR Center HR Blog, word that this isn't your father's job fairs--something new is in the air: click here

Lastly, in an article form the Journal, we learn that GMAT scores are being canceled...a lesson to employers that sometimes test scores aren't really all that reliable: click here

We've also added a great new feed from the WSJ on our right: click here

Executive Pay Gone Awry

The Charlotte Observer has an interesting article about when executive pay goes awry: click here

Harrasment Stops with Prevention

The HR Daily Advisor starts us off with the questions of who is being harassed in your workplace right now: click here

The best policy is not a reactive one but a preventive one...make sure to have a policy in place before some of the incidents they mentioned become a reality in your business...

Next, from the Business Review of Western Michigan, word that many employers are seeking outside help to lure good employees: click here

Lastly, we have a blog entry that asks if executive pay should be tied to firm performance: click here

What I'm Hearing...Executive Comp

Yesterday I was talking with some compensation colleagues from across the country. The topic of the day was executive compensation disclosure. My colleagues mentioned that in the last month, during 4 separate client engagements, the client's Board or top management requested a breakout of the CEO’s compensation showing how much of the CEO’s pay was for vacation time.

It appears that some organizations are opting to err on the side of complete disclosure. However, this type of approach raises two questions for me.

First, salary surveys do not break out pay by time worked vs. time not worked. How can we effectively benchmark when there are no data available?

Second, where does disclosure stop? Do we then move to pay for time spent at lunch, pay for time spent traveling on business, etc.?

We need to watch executive compensation to prevent more examples of excess and abuse like we’ve seen in the news the last few years. Disclosure is a good thing for organizations and shareholders alike. However, do we eventually cross a point where there’s too much information? Does the government have the right to monitor everything a private organization does?