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Growth of at-risk pay heightens focus on metrics

Ask for concrete measures of progress, but also look at qualitative factors

Metrics graphic

Nov. 30, 2018
By William Ehart

With at-risk pay becoming a greater portion of executive compensation, the metrics used to determine incentive pay are growing more sophisticated. CEOs should take an active role in creating their performance measures and make sure clear priorities are established that further the association’s mission.

“An increasing number of organizations are putting together a more stringent set of measures,” said Stephanie Tomasso, trade and associations practice leader at executive recruitment firm Russell Reynolds Associates.

“You have an increased professionalization of board members and a desire to see the CEO compensated in a way that more closely mirrors the business environment,” she said.

“What you’re seeing across associations now is the realization that resources are limited, time is limited, but member expectations are not limited,” said Jim McGreevy, CEO of the $4.6 million-revenue Beer Institute. “So the need for clarity around the goal-setting process is very important.”

“When I started in this business 37 years ago, metrics and bonuses were few and far between,” said Gary LaBranche, CEO of the $5.3 million-revenue National Investor Relations Institute.

“The metrics I recall from 20 years ago were really lists of things. And some of them were minutiae, some were things that we would normally do anyway,” he said.

CEOs, when discussing performance measures, should steer boards away from long checklists and make sure goals are prioritized.

“I learned over the years that less is more,” said Sharon Swan, executive director of the $3.6 million-revenue American Society for Clinical Pharmacology and Therapeutics. “You have to be very realistic and identify perhaps the top three or four items that are critically important for the organization, and what is really going to enhance the value proposition for members.”

“Where things can run awry is if the board gets into a checklist mentality,” said Mark Dorsey, CEO of the $3.6 million-revenue Construction Specifications Institute.

“I’ve been with groups that might say, ‘Here are 100 things, and you did 95 of them really well.’ And the board then focuses on the five things that didn’t go so well. That’s not reasonable.

“Keep the board focused on the most important thing, on evidence of progress towards an end for the membership, and less concerned about tracking activity,” he added.

“We’re here to fulfill a mission. And sometimes boards get wrapped up in, ‘How did your marketing plan do? How many more members did you get us?’ Well, that’s a distraction from the mission sometimes,” Dorsey said.

“The mission of the organization is the starting point for measurement of performance with any nonprofit,” said Bill Dixon, practice leader in executive pay and governance for health care and tax-exempt organizations at Korn Ferry.

Qualitative measures

Despite the increased focus on achievements that are measurable quantitatively, performance incentive plans should include certain qualitative measures as well, Dixon said. Such indicators could relate to how a goal was achieved: Did it come at the expense of some other organizational interest?

“The world prefers quantitative because there’s no doubt or debate,” Dixon said. “However, most of what we would call performance exists in the qualitative. It’s, ‘Did we do well in doing that, did we perform the process well?’ There is absolutely nothing wrong with qualitative metrics.

“What’s wrong is just using full discretion without any expectations,” he said.

Doug Culkin, retired CEO of the $33 million-revenue National Apartment Association, cautioned against incentive measures that are open to interpretation.

“The worst thing is when you have these ethereal things that aren’t measurable, like, that the mood and the culture of the staff will be improved. Well, how do you do that?” he said.

“Because you’re always going to have some people on staff, no matter what you do, who are never going to be happy. That’s just life. That’s nature. Don’t be stuck in any kind of a performance metric that is open to interpretation.

“This is a business negotiation, and everything has to be definable. If it’s not definable and you don’t feel comfortable with it, you should not accept it as part of the bonus program,” Culkin said.

Incentives for staff

Culkin and McGreevy said CEOs are well advised to convince boards to extend incentive pay to staff.

McGreevy, in his fourth year at the Beer Institute, said his staff initially resisted the incentive system but now embraces it.

“CEOs shouldn’t be afraid of implementing these kinds of outcome-based systems,” said McGreevy. “There may be some difficult conversations with staff and members at the beginning, but the more you do it, the more you put time and effort into really strategizing about the work of your organization, and then drilling down to the goals each year, the more rewarding it becomes over time.”

“I made sure that we had a similar bonus pool for the rest of the staff, so that everybody understood that if we all performed, everybody benefited,” said Culkin. “You don’t want to get a $100,000 bonus, or $50,000, and no one on the staff got anything.”

Culkin said NAA was in poor shape when he began his 17-year tenure, with just a $3.5 million budget.

“I was fortunate that I had people who were willing to take a chance,” he said. “And quite frankly, some didn’t think we would accomplish it, because they had such a horrible history.”

Making progress

A good performance incentive plan also will measure progress toward goals in addition to attainment of goals.

“Because you set a goal doesn’t mean it fits within a fiscal year does it?” Dixon said. “Sometimes you have to sort of back away from the outcome to look at the progress made.”

LaBranche said one of his earliest tasks in his former role as CEO of the $9.3 million-revenue Association for Corporate Growth was to improve frayed chapter relations. But all he could do as CEO was take necessary steps toward that goal—the chapters, run by volunteers, were beyond his control.

“But we could put together things we could control, training chapter officers, building a better website, tracking data more effectively, communicating better and empowering members,” LaBranche said.

“Now, sometimes they don’t use those tools. But our job was to provide those tools and train them how to use them,” he said.

“We want the board to be at the governance level, to articulate the large strategic objectives, the big outcomes that we’re striving to achieve for our members,” LaBranche said.

“Then we as executives have to create the building blocks, the steps along that road, the specific tasks and deliverables to achieve those desired outcomes.

“The best-case scenario is that the board defines ‘what’ and management defines ‘how,’” LaBranche said.