LESSON 25 OF 40: Compensating the CEO—It’s About More than Money
Getting the compensation-setting process right must be a priority.
THE BIG IDEA FROM THE BOOK: In Lesson 25, the authors remind us that to fairly review and set a CEO’s compensation, a board should also periodically review the CEO’s performance. That is the best way a board can reasonably set a fair compensation for a CEO.
The authors also suggest obtaining an external compensation survey so boards can work with comparable and current data when setting compensation.
It is good practice to set up a board compensation committee to confidentially conduct a compensation review. This provides the board with needed information to set compensation once the performance review is completed.
MY FAVORITE INSIGHTS from Lesson 25, pages 135-139:
• “Since performance reviews and compensation reviews go hand in hand, it is past time for a board to step up to its responsibilities.”
• “When CEO compensation is given an appropriate priority, a ministry board has demonstrated leadership in a significant element of governance.”
• “CEOs…will deeply appreciate boards that address compensation-setting with integrity and thoroughness.”
MY COLOR COMMENTARY:
Since one’s compensation can be structured in several ways, fairness and consistency require the board to carefully review the entire compensation package, including salary and any benefits.
An honest and transparent discussion with the CEO about the linkage between one’s compensation package and their past performance helps everyone understand the composition and amounts of total compensation.
THIS WEEK’S QUOTES & COMMENTARY BY TOM OKARMA:
TOM OKARMA is an author, board coach, and leadership consultant. As a top-rated nonprofit leadership author, keynote speaker and consultant in strategic planning, board development, and board governance, his devotion to helping nonprofits, combined with over 30+ years of business experience, make him a dramatic force for change, helping nonprofits increase their impact. Tom is the author of FROM THE INSIDE OUT: Leading Where it Matters Most: The How-to Guide to Leading Nonprofits for Impact, and Break Through the ICK FACTORS of Nonprofit Leadership: Discover Your Organization's True Potential.
TO DO TODAY:
• Establish a board committee to prepare and conduct a performance review of your CEO this year.
• Obtain a compensation survey reflecting current compensation levels in your community.
• Visit the ECFA Knowledge Center and read and share the short chapter, Lesson 25, “Compensating the CEO—It’s About More than Money.”
NEXT WEDNESDAY: On July 1, 2020, watch for the commentary by David Ingerson on Lesson 26, “Big Rocks, Pebbles, and Sand. Ministry boards have a natural gravitational pull toward issues that should be reserved for the staff.”