What CEO Compensation Looks Like Now
Thanks to COVID-19, associations want change agents in the corner office, but budgets are tight. The savvy new CEO, one expert says, will be creative and study contracts closely.
Nonprofit lawyer Jeffrey S. Tenenbaum has noticed a change in his workload lately. For most of his career, Tenenbaum, managing partner of Tenenbaum Law Group, always spent more time working on association CEO employment contracts than on CEO termination agreements. These days, though, he’s been spending an equal amount of time on both. And though he doesn’t have hard data on whether more association CEOs are exiting due to the pandemic, he’s seeing associations looking for innovative, turnaround CEOs—and perhaps casting off leaders who don’t fit that definition.
“There was a time when you could have a placeholder CEO, someone who’d kind of coast and keep the trains running on time, but who didn’t need to be a great innovator or great at strategic thinking, re-creating business models,” Tenenbaum says. “That’s not a luxury that any association has anymore. There’s a real need for strong, dynamic leadership, starting at the top.”
That situation presents a challenge, though: While demand has increased for the kind of innovative CEO who can earn top dollar, the current economic situation means that association are hesitant about lavish compensation plans. That puts more pressure on the CEO job candidate to be aware of the hiring environment and get guidelines established in their employment contracts.
Tenenbaum will speak more fully on CEO contracts at the ASAE Virtual Annual Meeting & Exposition on Tuesday, August 11. In advance of that session, he shared a few considerations for CEOs braving the job hunt.
Know what you want going in. Ultimately, Tenenbaum says, association hiring committees have a limited amount of flexibility for compensation when it comes to pure dollars. But they can divvy up that figure in various ways—via perks, deferred compensation, and so on. Prospective CEOs should have a sense going in of what their goals are from the outset. If the job involves international travel, those business-class upgrades will matter a lot; if retirement is on your mind, deferred compensation may make more sense. “I say, ‘We can ask for whatever you want, but pick and choose what matters most to you. You’re not going to get it all.’”
Plan for the end before you start. “I think one of the—if not the—most important part of the CEO employment contract is the prenup,” he says. Consider what the contract says about what benefits and compensation the CEO is due if his or her tenure ends: the amount of severance, the length of the severance period, and which benefits will remain in place during that period. One critical element of the contract is language about terminations for cause or without cause, which have distinct effects on what compensation the departing CEO receives.
Know how much leverage you have. Innovators may be valuable, but not all innovators are created equal. Nor are all associations. “If you’re a first-time CEO, and it’s a smaller association, they don’t have a ton of money,” he says. “Are you going to have the leverage to negotiate really good severance provisions and really narrow cause provisions? Probably not.”
Draw some bright lines between the CEO and board. Board members are more likely to micromanage a CEO’s day-to-day actions unless they’re explicitly barred from doing so. Language in the contract can give staff leaders the control they need. “One of the most important provisions in the employment contract, I think from both perspectives, is the provision that says the CEO shall have the sole authority for the hiring, firing, termination, compensation, and promotion of all other staff of the association,” he says. “When boards pick and choose winners and losers on the staff, it’s always a disaster.”
Get clarity on performance reviews. Restricting reviews to once-a-year check-ins is bad for rank-and file staff, and it’s no different for CEOs, Tenenbaum says. He recommends having quarterly check-ins codified in the employment contracts. Moreover, he says these check-ins should be performed by the board members who engage with the CEO the most. “I think it benefits both sides to define the group that’s going to evaluate and set the compensation for the CEO [that way],” he says. “I don’t like this idea of having a separate compensation committee that has no real working relationship with the exec, and all of a sudden they’re brought in at the end of the year, especially to evaluate how he or she did. I just don’t like that process at all.”
What was most important to you when you were negotiating your employment contract? Share your experiences in the comments.
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