Board members at not-for-profits know the age-old challenge they face when recruiting a chief executive—compensation.
However, the search for an organization's leader meets many obstacles as today's not-for-profit executives manage a more diverse set of responsibilities. Top professionals at a not-for-profit organization (NPO) must now move beyond program management to keep pace with a complex not-for-profit environment.
For boards of directors, the stakes remain high in the long term. Attracting the right chief executive for your NPO is only one part of the recruitment process, as retaining top talent starts with the first interaction you have with a candidate. Thinking strategically about your next executive hire can help attract exceptional performers and retain them as they grow with your organization.
To help manage the entire employee experience, here are five talent tips to consider.
1. Assess your risk, plan your strategy
The search for the right chief executive should flow from an NPO's overall assessment of its organization through its strategic plan. This assessment comprises two critical steps:
- Establishing the vision—clarifies the direction of the organization, its goals, and mission statement.
- A risk or gap assessment—evaluates where the organization stands today, its infrastructure, core organizational competencies, and future challenges. Typical challenges include specific funding constraints, funding dependencies, or vulnerabilities.
Documenting these two steps prepares an organization for the future. Once they are complete, the organization can identify the critical skills required to meet the organization's goals and mitigate the challenges it faces. Board members can use this information to generate a job description for a chief executive to guide their recruitment process for the greatest chance of success.
Key questions to ask:
- Has your board clearly articulated its vision to recruit for the next CEO?
- Have you identified the skills required to manage key risks?
2. Close the skills gap
The typical day for an NPO chief executive demands the expertise of—or at least familiarity with—a wide range of skills. Overseeing information technology controls, ensuring financial governance, fundraising to support current and future infrastructure, and leading the human resources (HR) strategy are all key areas that challenge NPOs.
Many NPO leaders rise through the ranks after excelling with the organization's core mission—its programs—but when promoted to the top job, they sometimes lack the skills to match their new responsibilities.
For new chief executives, the gap is sometimes overwhelming as they struggle to manage their expanded workload and gain new skills with scarce support.
For the organization, this gap can have a direct impact on the bottom line. As the board of directors assesses its NPO's strengths and weaknesses, the directors need to ask whether they are doing all they can to help their leader and, in turn, their organization, succeed.
Key questions to ask:
- Has your board done a proper and honest CEO skills assessment?
- Do you know what the weaknesses are and do you have a strategy to work on these areas?
3. Expand the talent pool
Organizations should consider targeting candidates with relevant corporate experience that can be transferred to a not-for-profit environment.
These candidates may lack experience with a not-for-profit's programs, so board members need to screen for the right cultural fit. They need to ensure that the incoming chief executive shares the organization's mission and understands its employees. To ease the vetting process, they can consider the volunteer experiences of applicants hailing from the corporate world.
Expanding the recruiting pool puts NPOs in direct competition for talent with traditionally higher-paying industry sectors and creates a talent plan that supports diversity, equity, and inclusion. Closing the compensation gap could help them close the recruitment gap.
NPOs often resist investing sufficiently in salary to attract corporate candidates because of presumed resource constraints. We recommend challenging this presumed barrier and re-evaluating the strategy. Organizations that invest in top-flight talent often recoup their investment when new team members drive increased fundraising and government funding. As always, organizations need key performance indicators to ensure the revenue gains justify financial commitments.
Forming the biggest component of an employee's compensation, salaries often turn out to be the primary difference-maker when recruiting. However, where NPOs find they come up short on base salary, they can consider other compensation tools to bridge the pay gap.
By and large, NPOs have steered clear of using incentive-based and variable compensation plans, such as bonuses. However, bonus-type arrangements could allow NPOs to balance salary costs with key performance metrics that would promote fiscal responsibility and revenue generation, while essentially paying for themselves. These plans need to be structured carefully. They can create compensation expectations that are difficult to claw back in poor-performing periods if seen as fixed. They can also cause employees to make short-term or adverse decisions in an attempt to maximize their compensation each year.
Benefits and other perks
Benefits hold minimal potential as recruitment tools. While some not-for-profits do offer the gold standard of public sector pension plans, their health and retirement benefits are generally no more generous than those in the corporate sector.
To increase the role's attractiveness, not-for-profits can offer other perks, such as flexible working hours, expanded vacation or sabbatical options, and remote work options.
However, challenges remain. The demands of a top executive sometimes render the work-life balance difficult to achieve in practice. As well, many not-for-profits do not have the technological infrastructure to support working remotely. Organizations need to commit to this vision if they truly want to attract candidates with flexible work arrangements.
Key questions to ask:
- Has the board reviewed its current practices with the CEO or an HR professional—internal or external—to explore alternative compensation structures?
- Has your organization made the necessary investments in technology to make roles more flexible and attractive for candidates?
4. Compete on compensation
Not-for-profit salaries may not always achieve parity with the corporate sector, but they certainly need to keep pace with other NPOs. For board members in pursuit of their next chief executive, this requires salary benchmarking to understand where your NPO falls in the market and what your competitors are paying key employees or directors. Use credible sources such as CharityVillage, a Canadian organization that provides news and resources for the not-for-profit sector, to inform your compensation strategy.
To obtain the best results, get specific with your comparisons, include for-profits in your analysis, and go beyond base salary to consider other benefits.
When structuring your compensation program, keep the following in mind:
- Revenue and employee headcount—higher revenue and more staff results in higher compensation.
- Size of community—compensation increases with the size of the communities the NPO services.
- Industry—health-related and educational organizations are the highest paying, especially where the organization's role is public education and awareness.
- Type of not-for-profit—registered charities pay an average of 16% less than other not-for-profits.
Key questions to ask:
- Have you completed an assessment of your CEO's compensation against the market?
- Have you explored other methods of compensation to ensure you are competitive?
5. Support your chief executive with outside talent
It's rare to find a chief executive with all the skills required to meet the needs of an organization.
Where an NPO cannot cover its talent needs internally, it should look outside the organization to bridge the gap. External professionals can advise and support the CEO, freeing them to focus on their core competencies. The relationship often bears long-term fruit—the chief executive receives training that they execute within the business.
Organizations across all sectors can often make the costly mistake where they believe they can bootstrap their way to adequate results, only to realize too late that they require outside help. In these scenarios, organizations contract an advisor to fix an immediate need, but avoid looking into the root of the problem or instituting best practices for the future. These Band-Aid-type fixes are less productive for all sides. The adviser may salvage the ad hoc situation, but with the root cause unaddressed, the organization simply goes from one fix to the next and incurs more costs in the long run.
Ideally, not-for-profits should choose planning over rectifying, and they should analyze how to learn from past mistakes. An organization's money is better spent if invested in long-term fixes.
Organizations that foster a long-term relationship with an external advisor may also benefit from their expertise in other areas. For example, an organization may require initial help for governance, but the advisor may provide access to a wide array of professionals that specialize in tax or legal issues. By becoming a true partner, the advisor spots risks before they arise and helps the organization save time, money, and headaches.
Increasingly, not-for-profit organizations are strategically partnering with advisors for expertise in a wider variety of services, from bookkeeping and payroll functions to financial and strategic planning and HR services, including change management, professional development, and recruitment and retention. These NPOs assess their desired degree of involvement with external talent and adjust the relationship to fit the situation. Outside talent can help the NPO successfully recruit its biggest piece of internal talent: its new chief executive.
Key questions to ask:
- Have you provided your CEO with the necessary support from external advisors?
To find out how we can help your not-for-profit organization, reach out to our HR and NPO leaders.
Kelly Hagen, Partner, National Not-For-Profit & Education Leader
Hali VanVliet, Vice President, People Advisory
This article is part of a series designed to help NPOs tackle their most pressing challenges and capitalize on areas of opportunity to drive future growth. Get more insights in our article, 6 initiatives not-for-profits should focus on to thrive in an evolving world.