How nonprofits can recruit (and retain) their next leader

October 12, 2018

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Board members at nonprofits know the age-old challenge they face when recruiting a chief executive — compensation.

However, the search for an organization’s leader meets many obstacles. It has become more acute than ever, as today’s nonprofit heads manage a more diverse set of responsibilities. Top professionals at a nonprofit organization (NPO) must now move beyond program management to keep pace with a complex nonprofit environment.

For boards of directors, the stakes remain high long term. Recruiting the right chief executive for your NPO is only one part of the talent process. To retain them as they grow with your organization, think strategically.

To help manage the entire talent experience, here are five talent tips to consider.

1. Compete on compensation.

Nonprofit salaries may not always achieve parity with the corporate sector, but they certainly need to keep pace with other NPOs. For board members in pursuit of their next chief executive, this requires salary benchmarking. To obtain the best results, get specific with your comparisons, include for-profits in your analysis, and go beyond base salary to consider other benefits.

Nonprofit chief executives in Canada received $94,000 in average annual salary in 2017, according to the Charity Village Salary Report. As expected, the higher the organization’s revenue and the more responsibility attached to the role, the higher the compensation.

We noted several trends:

  • Revenue and employee headcount — higher revenue and more staff results in higher compensation.
  • Size of community— compensation increases with the size of the communities the NPO services.
  • Industry — health-related and educational organizations are the highest paying, especially where the organization’s role is public education and awareness.
  • Type of nonprofit — registered charities pay an average of 16% less than other nonprofits.

Key questions to ask:

  • Have you completed an assessment of your CEO’s compensation against the market?
  • Have you explored other methods of compensation to ensure you are competitive?

2. Close the skills gap.

The typical day for an NPO chief executive demands expertise of — or at least familiarity with — a wide range of skills. Overseeing information technology controls, ensuring financial governance, fundraising to support current and future infrastructure, and leading the human resources strategy: these are all key areas that challenge NPOs.

Many NPO leaders rise through the ranks after excelling with the organization’s core mission — its programs. When they are promoted to the top job, they sometimes lack the skills to match their new responsibilities.

For new chief executives, the gap is sometimes overwhelming as they struggle to manage their expanded workload and gain new skills with scarce support. Many improve their soft skills by building on their experiences in relationship and human resources management. But they often struggle to gain command of the more technical requirements of the role.

For the organization, this gap can have a direct impact on the bottom line. A 2014 study from Austria reported a correlation between better qualified managers and higher and more stable revenues. As the board of directors assesses its NPO’s strengths and weaknesses, the directors need to ask whether they are doing all they can to help their leader and, in turn, their organization, succeed.

Key questions to ask:

  • Has your board done a proper and honest CEO skills assessment?
  • Do you know what the weaknesses are and do you have a strategy to work on these areas?

3. Expand the recruiting pool.

Organizations should consider targeting candidates with relevant corporate experience that can be transferred to a nonprofit environment.

These candidates may lack experience with a nonprofit’s programs, so board members need to screen for the right cultural fit. They need to ensure that the incoming chief executive shares the organization’s mission and understands its employees. To ease the vetting process, they can consider volunteer experiences of applicants hailing from the corporate world.

Expanding the recruiting pool puts NPOs in direct competition for talent with traditionally higher paying industry sectors. Closing the compensation gap could help them close the recruitment gap. NPOs often resist investing sufficiently in salary to attract corporate candidates because of presumed resource constraints. We recommend challenging this presumed barrier and reevaluating the strategy. Organizations that invest in top-flight talent often recoup their investment when new team members drive increased fundraising and government funding. As always, organizations need key performance indicators to ensure the revenue gains justify financial commitments.

Forming the biggest component of an employee’s compensation, salaries often turn out to be the primary difference-maker when recruiting. However, where NPOs find they come up short on base salary, they can consider other compensation tools to bridge the compensation gap.

By and large, NPOs have steered clear of using incentive-based and variable compensation plans, such as bonuses. Only 12% of Canadian NPO chief executives received a bonus in 2017, according to the Charity Village study.

However, bonus-type arrangements could allow NPOs to balance salary costs with key performance metrics that would promote fiscal responsibility and revenue generation — while essentially paying for themselves. These plans need to be structured carefully. They can create compensation expectations that are difficult to claw back in poor performing periods if seen as fixed. They can also cause employees to make short-term or adverse decisions, in an attempt to maximize their compensation each year.

Benefits and other perks

Benefits hold out minimal potential as recruitment tools. While some nonprofits do offer the gold standard of public sector pension plans, their health and retirement benefits are generally no more generous than in the corporate sector.

To increase the role’s attractiveness, nonprofits can offer other perks, such as flexible working hours, expanded vacation or sabbatical options, and remote work options. However, challenges remain. The demands of a top executive sometimes render the work-life balance difficult to achieve in practice. As well, many nonprofits do not have the technological infrastructure to support working remotely. Organizations need to commit to this vision if they truly want to attract candidates with flexible work arrangements.

Key questions to ask:

  • Has the board reviewed its current practices with the CEO or an HR professional — internal or external — to explore alternative compensation structures?
  • Has your organization made the necessary investments in technology to make roles more flexible and attractive for candidates?

4. Assess your risk, plan your strategy.

The search for the right chief executive should flow from an NPO’s overall assessment of its organization through its strategic plan. This assessment comprises two critical steps:

  • Establishing the vision— clarifies the direction of the organization, its goals and mission statement.
  • Risk or gap assessment — evaluates where the organization stands today, its infrastructure, its core organizational competencies and future challenges. Typical challenges include specific funding constraints, funding dependencies or vulnerabilities.

Documenting these two steps prepares an organization for the future. Once they are complete, the organization can identify the critical skills required to meet the organization’s goals and mitigate the challenges it faces. board members can use this information to generate a job description for a chief executive to guide their recruitment process for the greatest chance of success.

Key questions to ask:

  • Has your board clearly articulated its vision to recruit for the next CEO?
  • Have you identified the skills required to manage key risks?

5. Support your chief executive with outside talent.

It’s rare to find a chief executive with all the skills required to meet the needs of an organization.

Where an NPO cannot cover its talent needs internally, it should look outside the organization to fill the gap. External professionals can advise and support the chief executive, freeing them to focus on their core competencies. The relationship often bears long-term fruit — the chief executive receives training that they execute within the business.

Organizations across all sectors can often make the costly mistake where they believe they can bootstrap their way to adequate results — only to realize too late that they require outside help. In these scenarios, organizations contract an advisor to fix an immediate need but avoid looking into the root of the problem or instituting best practices for the future. These Band-Aid-type fixes are less productive for all sides. The adviser may salvage the ad hoc situation, but with the root cause unaddressed, the organization simply goes from one fix to the next and incurs more costs in the long run.

Ideally, nonprofits should choose planning over rectifying, and they should analyze how to learn from past mistakes. An organization’s money is better spent if invested in long-term fixes.

Organizations that foster a long-term relationship with an external advisor may also benefit from their expertise in other areas. For example, an organization may require initial help for governance — but the advisor may provide access to a wide array of professionals that specialize in tax or legal issues. By becoming a true partner, the advisor spots risks before they arise and helps the organization save time, money and headaches.

Increasingly, nonprofit organizations are strategically partnering with advisors for expertise in a wider variety of services — from bookkeeping and payroll functions to financial and strategic planning. These NPOs assess their desired degree of involvement with external talent and adjust the relationship to fit the situation. Outside talent can help the NPO successfully recruit its biggest piece of internal talent — its new chief executive.

Key questions to ask:

  • Have you provided your chief executive with the necessary support from external advisors?

To find out how we can help your nonprofit organization, contact our Not-for-Profit & Education team today.