Are We Paying The Executive Director Enough?

Short story.  Back in the 90s I was advising a nonprofit when in the midst of this year long engagement, the Executive Director suddenly announced her retirement.  As the agency prepared to advertise the vacancy, one Board member approached me to ask "Could you do a salary survey to see if we're offering enough?"

Well, I did. And discovered that they were paying the previous ED too much....way too much.  What happened is that over 27 years with the nonprofit (23 as Executive Director) she received small increases in lean years and larger ones during fat times.  Little by little, it lead to where she was earning $93,000/yr at the time of retirement....when the market rate for a nonprofit of this size in their specialty was $65,000-$71,000.  The excess also had a carryover effect by lifting the salaries of the Assistant Director, Program Managers and Department heads far above appropriate scale.  All told, the inflated salaries cost the agency in the range of $55,000/yr.

Many nonprofits worry about paying their EDs enough, and with good reason.   A sharp Executive is likely to be identified as an up-and-comer in the community and recruited away from you by a more attractive package. Paying too little is just as bad as paying too much.  The compensation structure of your organization requires thought from your Board.  Some steps to deal with the issue.

1. Set a policy at the board level about your goals in compensation and benefits.  A policy is a strong message to your employees about how you value them and your long term organizational goals in this area.
2. Seek advice from peer organizations and state and national trade organizations. Don't reinvent the wheel.
3. Have a strong HR talent on your Board.  They'll keep you abreast of salary and benefit trends.
4. Seek flexible benefits to the extent allowable. Simply put, allocate 'x' dollars per employee, and then allow employees to choose how that money is spent. The more control employees have over their own benefits the happier they are--or at least they will be less discontented.
5. Show what the organization pays per employee for benefits and how it has risen. Educate the Board and Staff.. If you take the step above and make benefits flexible, make sure you help people avoid making the choices that don't benefit them.
6.  Make sure everyone gets the same deal.....no higher benefits for senior managers.  Equity does affect organization morale.