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How to Ensure Fairness, Competitiveness, and the Retention of Good Employees

By Jack Shand, CMC, CAE

How do association leaders ensure that employees working in a not-for-profit organization are competitively compensated?

When you’ve helped a lot of associations and non-profits hire executives and interviewed thousands of people, you hear a great deal about compensation practices and expectations. The process on each side can sometimes look like salary arbitration in professional sports.

The employer – in the sports example a team’s management – may look to all the reasons why not to pay what has been asked. They point out the missed plays. They look at statistics favourable to their case. In an article for CBS Sports, Brian Stubits describes it as “an ugly process that has been known to tear relationships apart…not to mention it is a process where it leaves the team arguing why the player is not as good as he thinks, which is never fun.”

In the not-for-profit sector, employers may look to resources including Charity Village’s compensation research or to the Canadian Society of Association Executives’ annual compensation report, and pinpoint a number such as the average salary reported for all people in a similar job. In the CSAE 2016 study, the average CEO salary was just under $129,000. Employers may well ask, ‘why should we pay more?’ Average compensation among the members of the association is also raised at times, and how politically it could be inappropriate to compensate the association CEO at a level higher than what the average member earns.

The CEO – whether negotiating for the first time or seeking an increase – of course has other data to draw upon. Cash compensation among the top 14% of CEOs reporting in the CSAE 2016 survey exceeded $200,000; in some cases, well over $300,000. Other research in the association sector has found the CEOs of 50 high-profile business and professional associations earned above $290,000 on average (excluding benefits), with total cash compensation over $700,000 at the higher levels. The negotiating CEO is going to make a compelling counterpoint to their employer that if above average performance is the expectation it must be matched with above average compensation.

The following approaches and practices used by associations have helped both the employer and staff in compensation discussions, ensuring fairness, competitiveness, and the retention of good employees.

The Right Research

A human resources consultant serving as a board member of a national charity said to me recently that the first-step in determining what they should pay their CEO is deciding policy, including which salary quartile they expect to apply to a CEO from the available research, and what sources will be used to determine compensation practices.

Employers should also consider more than one data source. A data source example is CSAE’s annual research. Where the data allows for more refined analysis the information will be more relevant, such as looking beyond average compensation at a national or regional level to include aspects including the size (annual revenue, total membership, number of employees, etc.) of the organization, and the characteristics of the employee (education level, years of comparable experience by level and employer type, etc.).

Associations and not-for-profits may conduct their own custom research to complement sectoral research such as that produced by CSAE and Charity Village. Custom research identifies compensation among like-organizations that are seen to be highly relevant comparisons. An example of peer organizations is ten national associations, representing transportation and based in Ottawa, agreeing to share compensation practices and values. Comparators also needn’t be only other not-for-profit associations: A Habitat for Humanity ReStore® manager might also compare to the store manager position at Value Village which is a for-profit business. A vice-president, government relations position will be reasonably comparable in terms of responsibilities across trade associations, businesses, and professional service consulting firms.

Ondina Love, CAE, CEO of the Canadian Dental Hygienists’ Association (CDHA), engages an external consulting firm every five years to do a complete survey of compensation for all positions except the CEO. It is a comprehensive analysis, looking at job scope, competencies, and salary ranges in similar positions in both government and the association sector. A job grade and salary range is then provided for each position which is adjusted annually for cost-of-living. In the case of the CEO position, the board’s policy is to use the research from CSAE. “You have to ensure the board is comparing apples to apples,” advises Ondina. “I tell the board the characteristics to consider – including budget, location, association scope, number of employees, total membership – with the reminder you cannot compare a CEO in a $500,000 organization with one employee, to a CEO with a $4 million budget with 20 staff.”

Reviewing data at least annually is also better practice. Alan Tennant, CAE, CEO of the Calgary Real Estate Board, has an ongoing cycle to review compensation. “Every three years we conduct a compensation review and in the off years we review benefits and our work/life balance policies. Thus, each year we are conducting market competitiveness analysis on one compensation component which on a three-year cycle keeps us current on the full spectrum of employee compensation.”

Ondina Love of the CDHA also has a way to ensure the salary ranges remain reliable. “The key test is whether you can hire within the salary range. If, when someone leaves, you are having to offer the best candidate more than your established salary range, you’re paying too low. If need be, we adjust it from experience hiring in the workspace.”

The notion that working in the non-profit sector may infer an agreement to be paid less than other types of organizations also needs to be challenged.

First, in some sectors of the economy, not-for-profit sector wages are comparable to other sectors. A California study in 2014 by Employers Group and The Nonprofit Management Centre Southern California found that salaries were as good or better comparing non-profit to for-profit workers in social services, hospital settings, among others.

Second, in an increasingly competitive world where members can choose to support, indeed fund, providers of similar services from both non-profit and for-profit providers, the expectations of the end-user are certainly the same. Alan Tennant of the Calgary Real Estate Board observes: “I see no evidence now of stakeholders willing to accept less from not-for-profit staff. Shareholders may not necessarily be the customers of the company they invest in and even if they are, there likely would not be any direct contact with the staff at headquarters; but the expectations for a strong ROI (Return on Investment) will be there. I see our role as delivering a strong ROD&F (Return on Dues and Fees) to our members who in most cases are in daily direct contact with our staff. In the not-for-profit sector our members are our customers and partners so the expectations are inherently higher.”

The Right Perspective

Non-profit doesn't mean cheap. Non-profit is a tax status. A former CSAE national board chair correctly observed that non-profits may not be businesses but they must be business-like.

Association employers and executive recruiters are seeing the need for not-for-profit organizations to be open to recruiting leadership from other sectors, in part because of the retirement of baby boomers but also the need for a more varied range of experience. The Canadian Marketing Association hired a new CEO who brought both senior association leadership experience and senior experience in marketing from major organizations beyond the association sector. The CEO of the Greater Vancouver Board of Trade brought both experience as a business entrepreneur and as a provincial Cabinet Minister. In 2017, even the Canadian Society of Association Executives’ leadership has indicated it is open to a new CEO from outside the not-for-profit sector.

Diane Brisebois, CAE, CEO of Retail Council of Canada, sees competition for talent working both ways. “We realize today that we’re competing. We have people from the private sector we’re trying to attract, and we know people in the private sector look to associations to find people with multiple talents. In our case, we’ve noticed our members look at our employees, find their skills attractive, and headhunt them.”

Attracting leadership from business, professional services, the public sector, and from high-performance associations requires compensation that will draw high-quality executives to join -and stay in - the association sector. This requires competitive compensation informed by data from across sectors, not solely using association-specific wages and benefits.

The Right Criteria

Compensation is made up of cash, which can be salary and incentive pay, and benefits, which may range from the basics such as group insurance coverage, through to pension, and beyond to perquisites such as vehicle allowance, club memberships, and support for continuing education (e.g., graduate degrees and professional certification). Association employers also look to benefits that may assuage a lower salary offer compared to what other types of employers provide, such as providing additional time off.

For associations and association CEOs who would like to be able to pay more but are restrained by their resource limitations, there is a strong case for incentive – or bonus – compensation. Incentive is pay for productivity, or ‘cash for outcomes’. The outcomes are measurable and they often include delivering revenue growth.

There is another compelling case for moving to a higher proportion of incentive pay in the overall compensation approach. In a Harvard Business Review article, 21st Century Talent Spotting (Harvard Business Review, June 2014), executive recruiter Claudio Fernández-Aráoz, of the global firm Egon Zehnder, observes that hiring effectively for the future is based more on the candidate’s potential than relying only upon demonstrated competencies, and that “the question is not whether your employees have the right skills; it’s whether they have the potential to learn new ones.” Mr. Fernández-Aráoz elaborates that what matters is “the ability to adapt to and grow into increasingly complex roles and environments.” In the article, he shares the example of a highly-experienced CEO who was unsuccessful because “he could not adjust to the massive technological, competitive, and regulatory changes occurring in the market at the time.”

Hiring leadership where you are looking at the employee’s potential to realize success and manage change effectively supports a compensation approach where the employer rewards-for-results. In a recent CEO search conducted by our company the client’s board of directors wanted to have a sizeable (30%) bonus in the compensation package, although that size of bonus is not yet the sector norm. In CSAE’s 2016 data, participating organizations reported average paid bonuses of just over 10% at the CEO and senior management levels, and approximately 4% for non-management personnel. However, only about half of the organizations in the study have an incentive plan.

The Right Case

Most association executives and their boards of directors understand the benefit of evidence-based decision making, i.e., quality decisions are enabled by having the right data. However, data can be further enhanced by good sales skills: CEOs are not going to make progress with their employer if they don’t make the case effectively. As a former CEO of Walmart said about association CEOs, “You are in the business of selling….if you don’t have really strong marketing and sales…you are going to fail.”

Consider offering to the board or compensation committee some parallels they may relate to, including that as CEO responsible for helping an entire sector (or profession, or cause) to succeed, compensation should be at least comparable to what a CEO earns for a similar-sized company’s performance. The responsibilities of an association CEO are an amalgam of many professions: part management consultant, part government relations expert, part lawyer, part dean, etc. Consider comparisons to the daily rate of a good management consultant, or what the CEO of an accomplished government relations firm is earning.

Diane Brisebois takes board education an additional step by inviting a neutral, informed professional third-party to talk with the board (or the board’s compensation committee) about compensation. Brisebois ensures a resource is selected who understands the issues, and who delivers a message that is objective and won’t be perceived to be promoting the CEO’s self-interest. She also recommends to CEOs that they encourage the board’s CEO compensation review task force to include in its membership someone not on the board of directors. “This task force or sub-committee is not doing a CEO performance review but rather looking at how well the association is treating its employees in terms of compensation and legislative compliance, such as pay equity. You use the task force to help keep the board honest and not use the excuse of ‘we’ll only pay not-for-profit sector salaries’.” A qualified outside professional resource can help the group with its decision-making.

CEOs may also want to share insights from the leaders of major Canadian businesses that were provided to Paulette Vinette, CAE, of Solution Studio, and to me in interviews we held with the CEOs of major Canadian companies including American Express, Microsoft, Royal Lepage, among others.  These CEOs were asked to identify how they define leadership in, and what they expect from the leaders of the associations their companies support. The list includes –

  • Strong people skills
  • Run the association like a business and have strong business skills (“Do research. Be current with today’s challenges. Be ‘best-in-class’.”)
  • Respected thought-leader and effective communicator (“the sought-after voice for any question that pertains to the sector”)
  • Above average intelligence (“a breadth of view you don’t often see”)
  • Always current with today’s challenges – and that includes a keen understanding of what the members are facing
  • Vision
  • Drive

In the June 2014 Harvard Business Review article earlier referenced, the authors also identified the skills to look for when assessing a candidate’s potential:

  • Strategic orientation
  • Market insight
  • Results orientation
  • Customer impact
  • Collaboration and influence
  • Organizational development
  • Team leadership
  • Change leadership

The employee who can demonstrate mastery in these 15 areas will have made a convincing case to be compensated at the top levels of reported compensation for the leaders of Canada’s high performance associations, where compensation levels favourably compare to the private and public sectors.