Difficult environment for advocacy and professional groups, rising board demands, comparative salary data push compensation higher

From left, James Wynn of Quatt Associates, Art Herold of Webster Chamberlain & Bean, Leslie Hortum of Spencer Stuart and Jim Moss of PRM Consulting hold a panel discussion at the CEO Update Live Executive Compensation Forum.

Association CEO salary increases of about 4 percent a year are being driven by increased expectations, a more challenging environment in Washington, D.C., and for associations in general, and greater use of comparative salary data. That was the message from experts gathered for the CEO Update Live Executive Compensation Forum Nov. 18.

Moderator Mark Graham, managing director of CEO Update, noted at the outset that median compensation for association executives grew 4 percent year-over-year, according to the latest data, and that median pay for groups with more than $1.7 million in revenue surpassed $300,000 for the first time. But the difference in pay between those in the top quartile and those in the lowest is significant, he said.

Panelist Leslie Hortum, head of the Washington office of recruitment firm Spencer Stuart, said well-paid executives are receiving appropriate recognition for the difficulty of their jobs.

"What's driving up pay is that the expectations from the board continue to go up and, as there is an opportunity to develop performance bonus plans that really weigh your performance against specific metrics, you get paid for that. That is becoming more and more the norm.

"As Washington is becoming an increasingly complex place, there is recognition that your members need appropriate representation," Hortum said. "And it's a competitive market for these kind of jobs."
A roomful of association executives, consultants and sponsors attended the event, held at SunTrust Bank's Washington headquarters on New York Avenue Northwest.

The other panelists were: Art Herold, partner at law firm Webster Chamberlain & Bean; Jim Moss, founder of HR management firm PRM Consulting; and James Wynn, a principal at compensation consulting firm Quatt Associates.

The experts said greater use of comparative pay data also is helping boost compensation.

"There's just better access to information," Wynn said. "Individuals understand not only base salaries but everyone has a better understanding of the incentive plans of their predecessors and comparable associations. There's a better understanding as far as deferred compensation.

"I emphasize that these pay increases aren't without strings attached, be it increased retention incentives or performance demands," he said.

Moss agreed, and noted that compensation has been growing at about 4 percent for the last five years.

"CEO Update is probably contributing to that, since most organizations want to see what others are doing. On that basis, it's a snowball effect," he said.

Negotiate directly
Panelists also agreed that executives should negotiate their contracts directly with board search committees or compensation committees when they are hired, lest an intermediary turn relations sour.

"You're cutting a deal between two parties and it's best if the two parties negotiate themselves rather than through a third party," Herold said. "You both use information from third parties to suggest what appropriate compensation should be."

Hortum and Wynn said they can play an informational role between the two sides. Hortum said she begins by asking candidates about their current packages and their priorities.

"Then I go to the executive committee or the compensation committee and say, ‘Here's where they are today, here's what's important to them, let's understand what you have been paying and have a conversation about what a reasonable offer would look like," she said.

Graham noted that CEO pay in the 75th percentile is about $600,000, compared with an overall median of just $300,000. He asked Moss how a CEO can know whether to seek a higher level of pay.

Moss said he encourages the search committee to develop a philosophy about the level of compensation they want to provide—on the high end, or on the low end.

"Most organizations will say they want to be a pay leader, they want to compensate so as to attract the best candidate. So it's not unusual for organizations to say they want to be a 75th percentile payer," he said. "But then when you show them what that number represents, they say, ‘Well, no, maybe we want to be in the middle.'"

Wynn said many groups are seeking to raise compensation out of the bargain basement.

"If you drill down on the 25th percentile, you see organizations making aggressive pushes to catch up to the top of the market to keep people in their seat and for other reasons," he said. "So you really see a strong movement at the bottom of the market bringing compensation up, and less robust movement at the very top of the market because they're already there."

Herold said the beginning of the relationship is the time to negotiate terms for the end of the relationship. CEOs should ask for severance of six months to a year of pay.

"The most important provision in the contract is the termination provision. It's really essential," he said, noting that a mere personality difference with a new board chair can cause termination without cause.

"You need to have some sort of assurance that you'll have some runway between your current job and your next job," he said.

Ensure performance review
Hortum said CEOs should insist on annual performance reviews.

"I'm always surprised when an executive will say, ‘I haven't had a review in seven years,'" she said. "That is your fault and it's their fault. There needs to be an annual sit-down, preferably with not just one person but with a group of incoming and outgoing key officers."

Wynn said performance metric dashboards are becoming much more detailed.

"Members are focusing more and more on performance," he said. "No longer are board members saying, ‘Oh, it's advocacy, it's hard to measure.' Now they're trying to get into the weeds to figure out what they can measure. Not only what legislation did we get passed, what did we defeat but what did we do at the state level, what do our membership numbers look like? Not just the retention rate but what is our retention rate for second and third year members?"

In addition to increased advocacy needs, many associations now want to diversify revenue streams, he said.

"No longer are boards willing to accept just membership dues increases, they want to understand what innovations you are bringing to the table, and when they invest in the innovation, what is the result?

"For the CEOs who are successful we are seeing large increases. On the flip side, you are seeing less tolerance for poor performance," Wynn said.