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Compensation Questions

Posted by David Styers on Jul 27, 2012 12:34:55 PM

Dollar signs surrounding a question markBy David Styers, director of member education & engagement /senior governance consultant

At a recent “Breakfast with BoardSource” gathering of local metro DC BoardSource members, the topic of conversation was chief executive compensation. Although I wasn’t sure how scintillating this topic would be at 8:30 a.m., by the ardor of the discussion, we obviously struck a chord. Many participants were very knowledgeable and engaged about the issues concerning executive compensation; those who were not left the gathering with another item to look into on their to-do list.

Practices and procedures for setting and approving executive compensation cannot be taken for granted or entrusted to a few. Gone are the days of a board chair and a chief executive candidate negotiating salary on a cocktail napkin passed back and forth across the table. Determining pay for the chief executive isn’t like buying a car. The full board should formalize a process for setting appropriate compensation for the chief executive and approve the compensation package. This process should include looking at salary trends in the sector, comparing like organizations, looking at national compensation surveys, and, if necessary, engaging an outside expert to review and make recommendations to the board.

Hardly a week goes by without some local or national headline about excessive pay for a nonprofit executive. Sadly, these few bad apples among the more than 1.5 million nonprofits are often the only time the media takes notice. This is frustrating for many reasons, but especially because the overwhelming experience of most in the sector is that nonprofit salaries are on the whole too low. These scandals, however unfortunate, ultimately lead to the right question, however: “Where was the board?”

In BoardSource’s recent Executive Compensation Survey, only two-thirds of the respondents said that their full board votes to approve chief executive compensation. No wonder the board’s oversight of the chief executive and fiduciary responsibilities is suspect for scrutiny! And amazingly, it is often the chief executive who is scapegoated and forced to resign when a compensation package becomes a public affairs nightmare. (See the Charlotte United Way scandal as a prime example.)

So, where is your board? Would you be comfortable if your local newspaper printed your chief executive’s salary on its front page? The information is public record. All it is takes is a few clicks on GuideStar, and voila, information that your own board members may not have approved or even know is right there for anyone to see.

The lesson learned is a simple one for board members: Uphold your responsibility and prevent these negative stories from hurting us all. At your next board meeting, test the knowledge of your board. The question on BoardSource’s board self-assessment asking if the full board approves the chief executive’s compensation is often answered “Don’t Know.” How would your board respond to this question? How do you set fair compensation for the chief executive?

Topics: Board Best Practices

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