Leadership

How Higher CEO Pay Can Impact an Entire Organization

By / Mar 6, 2017 (iStock/Thinkstock)

Association CEO compensation is up these days. That’s good news for execs, but it can have a broader ripple effect too.

Things are looking up for association executive pay. “CEO Salary Dynamics,” [PDF] a new research paper from the ASAE Foundation and Naylor Association Solutions, reports that CEO compensation has swelled in the post-Great Recession years. From 2012 to 2016, according the report, the median CEO base salary has spiked a remarkable 33 percent, from $150,000 to $200,000. The growth is larger at trade associations (40 percent), but pretty much every category is on the upswing, whether the breakdown is by budget, staff size, or scope. Only associations with budgets below half a million dollars saw a decline between 2012 and 2016, and there the downturn is only one percentage point.

That said, some types of associations perform better than others in terms of executive pay: Salaries are robust in finance and manufacturing, softer in construction/housing and education. And the numbers are slightly more sober when the study is limited the 71 associations that participated in the ASAE Foundation’s compensation study in 2012, 2014 and 2016; there, the increases are more modest, with the median increase at nearly 17 percent across the four years.

Regardless of how you cut the numbers, that’s good news for the association sector, especially if you’re of the mindset that the industry needs to “run more like a business” as ought to aggressively compete with the corporate sector for leadership talent.

A company that is not nailing diversity doesn’t have the proper searchlight going out into the market to get the best people.

But higher executive pay, as the corporate sector well knows, tends to make your organization a magnet for extra scrutiny. Late last month, to pick just one recent example, Volkswagen capped its executive’s salary in the wake of an ongoing emissions scandal that the carmaker has had a hard time shaking. And in early February, when a reporter scrutinized the salaries of hospital executives in the midst of an ongoing debate about healthcare, the American Hospital Association was forced to step in to defend its industry leaders.

Of course, only the most robust associations are dealing with the kind of seven- or eight-figure payouts at play in those cases. And nonprofits are subject to more executive-salary scrutiny from the IRS under the private inurement prohibition, which watchdogs leaders receiving “unreasonable” benefits from an organization’s assets. But it doesn’t take a blockbuster salary at a nonprofit to attract complaints about salary and overhead.

So, what to do to argue for the value of those pay hikes? One idea that’s gotten traction recently, especially in the tech sector, is to tie executive compensation to meeting diversity goals. Late last year, for instance, Microsoft announced that it would be doing so to stem the slide in the percentage of female workers at the tech giant; according to a recent study by Open MIC, other firms like LinkedIn and IBM are doing much the same. Investor Pat Miguel Tomaino told Fast Company last month that companies that resist doing so aren’t just failing to do the right thing—they’re making a bottom-line mistake. “A company that is not nailing diversity doesn’t have the proper searchlight going out into the market to get the best people,” Tomaino says. “That’s what we call a human capital risk.

Boards generally have plenty of leeway to establish those goals, so long as diversity issues are on their radar. But the CEO can also take matters into his or her own hands and make sure that the benefits at the corner office are shared in some way with the staff. And that can go beyond pay raises: In the latest Associations Now, Emily Bratcher looked at a few of the trends that emerged in the latest ASAE Foundation Compensation & Benefits Study, finding that employees are looking closely at paid leave, remote-work options, and education assistance.

If this indeed good times for CEO compensation, that means it’s also time for those leaders to contemplate their role in helping the rising tide lift all boats. I’m not much for knee-jerk complaining about high salaries; CEOs have difficult jobs, and markets demand good pay to keep them in their positions. But high pay that isn’t matched with benefits across the organization can make the CEO look like little more than a nicely gilded leader. That paycheck is what you’re working for, but it’s also a prompt to think about how the rest of the organization can benefit too.

What does your association do to connect organizational goals to executive compensation? Share your experiences in the comments.

Mark Athitakis

Mark Athitakis, a contributing editor for Associations Now, has written on nonprofits, the arts, and leadership for a variety of publications. He is a coauthor of The Dumbest Moments in Business History and hopes you never qualify for the sequel. More »

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