Compensation Questions

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?

Passion vs. Competency

By David Styers, director of member education and engagement; senior governance consultant

OK, pick one – a board member candidate who is passionate about your mission or another with competency  in nonprofit governance.  Whom do you choose?  Dave Sternberg, a well-respected BoardSource senior governance consultant, weighed in on this question a few weeks ago when he tweeted:  “Boards consume themselves with finding passionate board members…not competent ones.”  Wondering if BoardSource’s members agreed, I posted Dave’s Tweet as a discussion on our members-only LinkedIn group site.  Quite a few people, I am pleased to say, had definite opinions.  Now, it’s my turn to share mine.

I think Dave is right. Almost without exception, when I ask board members why they serve on a board, they answer “passion for the mission.” I don’t think anyone has ever replied, “Because I’m good at it” or “Because I love to read financial statements!” In fact, because passion is so common an answer, BoardSource took it out of the equation when we asked board members and chief executives which recruitment criteria are most important to their organizations in the most recent BoardSource Nonprofit Governance Index: “Other than passion for the mission, which three of the following criteria do you think are most important to the organization when selecting board members?”  When we asked these same people to rate their boards’ overall competency, chief executives gave their boards a C+, while board members gave themselves a B (board members always rate themselves higher than their CEOs do). The greatest difference in opinion, by the way, was around fundraising and community outreach.

New board members, though, have an excuse for their mediocre grades. The fact is, no board member comes to board service having majored in nonprofit governance in college. Although there are board trainings in many communities, and BoardSource offers a certificate in nonprofit board education, most board members look to their organizations for “on-the-job” training.  The problem is: A board doesn’t know what a board doesn’t know.

To help address this issue, a national board I know requires every new member to have prior board experience.  But, again, a board doesn’t know what a board doesn’t know.  Just because someone has served on a board doesn’t mean it was an effective board or that he or she learned good governance skills.  Actually, the reverse could be true!  And if every board required previous board experience, governance rookies would never have an opportunity to get their feet in the boardroom door!

So, if it’s unreasonable to expect all new board members to come with governance competency, what should we be looking for in new members, if not passion? The answer is a desire to truly engage and be engaged in governance. And then we need to deliver. Even the most passionate board members will lose heart if they do not feel that they are appreciated or add value to the governance of the organization. And the competent ones will be so frustrated as to jump ship if they feel like they cannot make positive change.  Exceptional boards see their members as a value add and are consumed with engaging them – with providing them with opportunities to develop their governance competency and increase their passion for the mission.

Ultimately, passion and competence are trumped by engagement. What are you doing to engage your board members in building their governance competency and passion for your mission?

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