Over the past few years, the pandemic has turned the employment world upside-down. Mergers and acquisitions are happening at an accelerated pace, and departures of key executive leaders is at a level never seen before.
According to an October 2021 article in Forbes, “companies are bleeding leadership talent.” As cited in the article, a survey in September 2021 reported the turnover rate of corporate leaders had increased to an average of 18%, up from 14% in the midst of the COVID pandemic.”
Not-for-profit organizations are not immune to these climbing statistics. As outlined in an article by Challenger, Gray and Christmas, CEOs in government/nonprofit entities had a total of 148 departures as of August.
As nonprofit boards begin looking to replace key executive positions due to succession plans or resignations, they need to consider a few “rules” to begin this process.
Of course, it goes without saying that boards should be reviewing similar organizations in the same geographic area when making these critical decisions. Comparing a small continuing care retirement communities campus in rural, central Pennsylvania with a larger CCRC in Florida will not produce a viable comparison. Other factors must be considered as well.
Every nonprofit board has a fiduciary responsibility to approve a “reasonable” and “non-excessive” compensation level as outlined in the instructions on the Internal Revenue Service Form 990. When analyzing the data to determine appropriate executive compensation, several elements must be considered. Not only should the amount of the monetary salary to be reviewed, but any benefits (insurance, paid time off, bonus opportunities) must factor into this process, too. Additional items to consider include whether the individual is being provided a car for his or her use, or housing connected to the position, as these things affect the overall compensation picture.
Analyzing and assessing current executive compensation is a process not to be taken lightly and must include the following, nonnegotiable steps:
- Compensation must be approved in advance by the authorizing body.
- Before a salary level is determined, the authorizing body should consult accurate reliable sources of data.
- The process by which the plan is implemented must be documented.
- Additionally, a conflict-of-interest policy is essential before initiating the process.
To achieve those steps thoroughly, the nonprofit board will need to follow these guidelines set forth by the IRS:
- Use an independent body to conduct a narrative and comparative review. The idea of having a board member(s) conduct their own review is not an acceptable path forward, according to the instructions on the IRS 990.
- The independent body must look at comparable data (salary, benefits) from similar nonprofit entities. A great place to start is our recently released white paper “The Value of Leadership: An Analysis of Not-for-Profit Senior Living Executive Compensation.”
- The independent body must document who was involved in the analysis and what analytic process was used to obtain and refine the data.
As we have learned throughout the pandemic, employment and salaries are a spotlight issue right now. C-suite executives and non-profit boards must be aware that the salaries and total compensation for executives is being scrutinized more than ever before due to the pandemic and “The Great Resignation.” It is imperative that the process of executive compensation analysis be done in a structured and thought-provoking manner to avoid unnecessary risks and remain a successful organization.
Cathy R. Benfer MS, PHR, NHA, is manager of recruitment services for LW Consulting Inc., which for almost two decades has worked to deliver operational and compliance improvements to acute, post-acute and sub-acute providers and government entities involved in healthcare.
The opinions expressed in each McKnight’s Senior Living marketplace column are those of the author and are not necessarily those of McKnight’s Senior Living.
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