Non-profits face special challenges when negotiating with candidates for leadership positions, especially those that employ hundreds of people and have multi-million dollar budgets.
Though their mission may be altruistic, the organizations themselves are every bit as complex as a publicly held company, and require an executive team that’s just as sophisticated. Often, that means luring candidates who are used to the dollars and perks that go along with high-level jobs in the business world. While there are always exceptions, the reality is few non-profits can offer the kind of compensation attractive candidates are used to.
The good news is that most executives who consider non-profit work understand they’ll need to have different expectations than they would if they were considering the stability of a Fortune 500 company, or the potential payout of a biotech startup. That doesn’t mean your negotiations will be any easier. Indeed, you may have to be especially creative in crafting a package that works. Fortunately, no one expects to get rich leading a non-profit.
Up Close and Personal
As a rule, executive candidates expect offers to be personalized. When you’re hiring for a non-profit, this is especially important because your candidates are being driven by personal interests that go beyond the typical aspects of compensation. Of course, you want to get to know the candidate closely to be sure they have the skills and experience needed to accomplish your organization’s goals and the mindset that goes along with a non-profit’s mission. As in business, the executive you choose to oversee fundraising will be a very different person from the one who manages operations, but both will need to feel the organization’s sense of purpose – and be excited about it.
That means you must understand how your organization’s work fits with the candidate’s personal and professional goals, their ambitions and even the kind of lifestyle they’re looking for. Much will depend on where they are in their career. Some may be successful and looking for their last job to have meaning. Others may see a growth opportunity in taking an organization to the next level. Still, others may want to leave the corporate track to make their living in a way that involves a passion. Whatever the motivation, it’s imperative that the organization’s leadership understand what’s driving each candidate and whether they’ll be able to perform under the pressures non-profits face in terms of fundraising, donor relations and financial obligations, to name just a few.
In addition, negotiations are complicated by the fact that non-profit boards are under real regulatory pressure to make sure they offer compensation that the Internal Revenue Service deems “reasonable.” The IRS, which makes the determination of whether or not an organization can be considered a non-profit in the first place, recommends following a three-step process:
• A review of the proposed package by an “independent body.” This can be a sub-group of the board or even the board as a whole, so long as it doesn’t include individuals who “have a conflict of interest concerning the transaction.”
• The body reviews packages from comparable organizations.
• The organization adequately documents its process.
The real issue is what “reasonable” means in terms of dollars. According to Charity Navigator, a New Jersey organization that evaluates the finances of some 8,000 charities in the U.S., non-profit compensation is relatively low by an executive’s standards. In 2015, the median package for a CEO – including salary, cash bonuses and expense accounts, but not contributions to benefit plans or deferred compensation – was just over $123,000, three percent higher than in 2014.
Not surprisingly, larger organizations offered more generous pay, and the group’s mission and location also had an impact. Research organizations, for example, paid more than human services groups, and those located in the Boston-New York-Washington corridor paid more than non-profits in other parts of the country.
Perception Matters
In determining pay, optics are an issue, as well. Non-profits are conscious of how their executive pay levels are perceived by the public. As a result, more and more of them are tying pay to performance, offering more incentive plans, deferred compensation packages and supplemental retirement plans. In addition to allaying public concerns, such an approach encourages high-performing executives to stay in place. If they move on, they may leave behind a sizable amount of incentive rewards.
However your organization crafts its offer, it’s important there be some kind of philosophy behind it – a basis that can explain why you took the approach you did. It should include an explanation of the non-profit’s goals and the kind of talent it needs to accomplish them, and include a discussion of why that expertise isn’t available internally. The more clearly you lay out your vision at the outset, the better your chances are for attracting and landing the leadership you need.