Q: After 20 years of service, our executive director is retiring. We have put together a job description, but we are at a loss as to what to list for the salary. The board is divided. Some feel we should just offer what we’ve been paying. Some feel we will have to offer more because the rates today are undoubtedly higher, and also because we will expect this new person to take us in a slightly different direction, which will require more sophisticated skills. Yet others feel we should offer less, since our retiring executive director committed so many years to the organization and earned the right to move up each rung of the pay ladder.

And then there is the benefits package… Our retiring executive director had a liberal holiday and vacation schedule, but that’s about it. She was covered under her husband’s health insurance, so we never had to offer that. With the availability of the Affordable Care Act, we wonder if we even have to offer health care to the new executive. Also, we never offered any kind of pension plan, but we are seeing now how detrimental that has ended up being for someone who dedicated a major part of her professional life to us.

Can you tell us what we should do for the incoming person?

 

A: While you didn’t tell me much about your organization, let’s see if I can help you figure out what might be the right salary and benefits package for your organization to offer. The key is to offer what will be seen as a comparable wage and benefits package – one that is similar to what other executive directors in your community, working to accomplish similar missions in similar-sized organizations, are receiving. That’s important because the Internal Revenue Service began several years ago to request that organizations be able to substantiate that the salaries and benefit packages they are paying their executive directors are comparable to those paid to executive directors in similar institutions. While the Internal Revenue Service was most concerned about packages that might be perceived by the public as excessive – clearly not the case in your organization from the sound of it – its requirement does make your job easier.

Geography, budget size and mission are the three variables seen as most relevant to determining comparables.That geography impacts salary is obvious. If your organization is based in New York City you are going to pay considerably more than if you are based in, say, Boise, Idaho, just because the cost of living is so much higher in New York. Charity Navigator found this to be true in its 2014 Charity CEO Compensation Study, where the highest salaries by geography were in the northeast, and the lowest in the western mountain states.

 

The second factor determining salary is the category within which your mission falls. Religious and environmental organizations tend to pay the least, whereas education, arts and culture, and health tend to pay the most.

But, it is the size of the budget for which your executive director will be responsible that accounts for perhaps the largest difference in salaries. Those running multi-million dollar organizations can earn in excess of a million dollars. On the opposite extreme, those running an organization with a budget less than $250,000 may earn as little as $20,000 or $30,000.

It is the interaction of these variables that determine a fair salary. While someone working in a small human services organization in Nevada (another western mountain state) will likely make less than $100,000, someone working in a large human services organization in New York could make in excess of $3 million.

Fortunately, there are a number of sources that research these variables annually and make the data available to you. These include Charity Navigator and its annual Charity CEO Compensation Study referenced above, the Nonprofit Times’ annual Special Report on Salary and Benefits, the Chronicle of Philanthropy’s annual Executive Pay at Charities and Foundations, and Guidestar. Access to most of these is free, but you may have to have a subscription or pay for access to the others.

You will also want to research benefit packages. Though, to answer your question above, you probably will want to offer health care to your incoming executive director if you want to be competitive. According to the Nonprofit Times’ 2013 Nonprofit Organizations Salary & Benefits Reportmore than 85% of organizations do. And, of those, 62% offer preferred provider plans (PPOs), typically the most expensive plans available. Of course, you could offer to cover the individual’s choice of plans through the Affordable Care Act exchanges up to a pre-determined amount, if that is your preference. You will also probably want to join the two-thirds of all organizations that offer some sort of retirement benefits, especially after seeing the effect of not offering this benefit on your retiring executive director. But benefits can also include such things as flextime, free or subsidized parking, and paid educational opportunities.  You can even offer a cafeteria plan, where you allow the executive director to choose what is most important to him or her, as long as that person stays within the amount budgeted for benefits.

Once you have researched what other organizations like yours are doing for their executive directors, you will have an excellent idea of what you should do for yours. Write up your findings so that you can demonstrate to anyone, including your incoming executive director, that you have met your obligation and done your homework.

A final caveat…You also have to consider what you can afford. It won’t do your clients – or the executive director dependent on his or her salary – any good if you have to close your doors because you stretched beyond your means to pay what is “comparable.”

As to including the salary and benefits package on your job description, I suggest you don’t. You want some wiggle room so that you can go up or down a bit based on the final candidates. In that vein, consider defining a salary range rather than focusing in on a single number. I guarantee you’ll appreciate having given yourself permission to be flexible when you get to negotiations.