We've all seen the media headlines scream CEO earns $250,000 or Head of organization gets $100,000 bonus. Recent Free Press headlines shouted Auditor general questions wages. This headline, like others, raised questions about executive salaries and left us to wonder, "Is it too much? How much is too much? Is there such a thing as too much?"
Recently I delivered a report presentation to a board of directors who asked me that very same question. Here's a list of points that was offered to them for consideration:
-- What or who are you comparing to?
-- What is the "market rate" for this type of position?
-- What other elements of a total compensation program are offered?
-- Has the position been difficult to recruit for or has there been an issue with retention?
-- What is the organization's philosophy around executive compensation?
-- Is the amount of compensation commensurate with performance?
-- What can the organization afford?
-- What is reasonable?
These are just some of the questions that need to be answered when determining the right compensation for a CEO or any other position in an organization. What is important to note is that questions are being asked.
The role of any board of directors, or those who have oversight for executive compensation, is becoming increasingly complex with more and more onus being put on those individuals to be educated and aware of what constitutes "proper" compensation as part of protecting the assets of the organization and interests of shareholders and members. Those board members who are doing their homework and watching the headlines know that it is imperative that they engage compensation experts to assist them in the process of determining market rates for the CEO. Not only is it a smart thing to do, it's the right thing to do.
On the way home from work one day this week, I listened to a radio report about a Winnipeg executive who allegedly received a compensation package that was illegal and put in place by the organization's board of directors. Now I could jump up and down and rant and rave about how the terms of his employment were outrageous, or I could investigate and find out the facts. Like many other similar stories, it's important to find out the facts before passing judgment. Now in this case I hope that the board of directors has received expert advice about what they can and should do; nevertheless, I would argue that while the compensation package might very well be legal and even acceptable, it's the optics that pose a problem.
So, getting back to the presentation I delivered; optics were discussed at the boardroom table. The organization that hired me as their compensation expert was a non-profit and provides services to many who probably don't earn anywhere near what they are worth. The CEO was very concerned about optics even though he was advised that he was underpaid. These are the type of people that we need in more of our non-profit organizations where they are concerned about earning "too much money" even though it may be the market rate for the position. It's board members such as theirs who ask questions like "Are we an efficient organization? Is our performance acceptable? Can we afford to keep up with the market?"
Every day, I'm more and more impressed with the leaders in our community who step up to the plate to lead, manage and direct our non-profit organizations. How much is too much? I'd say we could never pay these individuals enough to recognize and reward them for the tireless work that they do. Are there some people out there who don't deserve the compensation they receive? Sure. But these people exist at all levels within organizations. It's those in publicly governed bodies who are easy targets because of the Freedom of Information and Protection of Privacy Act (FIPPA).
Bottom line, if you are a board member of any organization, non-profit or otherwise, make sure you exercise due diligence in setting executive compensation by executing good governance practices. This is not an area that you can afford to ignore or to gloss over. If you don't know where to begin, start with the Canadian Coalition for Good Governance (CCGG) or a trusted compensation adviser to provide you with expert advice and guidance and to help you navigate the ever-changing world of executive compensation.
Colleen Coates, CHRP, CCP, is a practice leader with People First HR Services Ltd. She can be contacted at email@example.com.