Executive compensation in associations and nonprofits is influenced by five major organizational characteristics: size, industry, membership type, activity and location. To benchmark compensation accurately requires identifying similar groups based on those critical, linked characteristics.
HOW TO IDENTIFY SIMILAR ORGANIZATIONS
While no two groups are exactly alike, building a list of comparables to benchmark executive compensation requires finding other groups that share similar structural and financial characteristics.
The most accurate dataset will include 15 to 20 organizations of similar size (by revenue), representing similar industries with the same membership type (individual or corporate), that share similar priorities (advocacy, education, meetings, public policy) and are located in the same geographic region.
An explanation of the five organizational characteristics with the greatest influence on executive compensation:
An organization’s size—measured by revenue—is the biggest contributor to executive pay. The larger and more complex the organization, the bigger the paycheck. Comparable organizations should be within +/- 20 percent of your group’s revenue.
For the best benchmarking results, identify organizations representing similar industries or professions in the same sector. If the dataset is too small, look to different industries or professions, if they have similar goals or organizational priorities.
Associations fall into two categories: trade associations and professional societies. Executive pay in standard-setting groups is more closely aligned with those in professional societies. As a general rule, trade groups tend to pay better than professional societies. When benchmarking pay, it’s advisable to compare only similar types of associations.
What does the association do for the industry or profession, such as standard setting, advocacy, continuing education or acting as the public face for the industry? Of course, many associations have multiple activities, but when benchmarking compensation, find organizations involved in similar activities with similar emphasis in those activities.
Cost of living differences across the U.S. do influence pay, but the Washington, D.C. region does have two special circumstances that move compensation even higher. The concentration of associations in the D.C. metro region drives up competition for talented executives. Also, a Capitol-area location usually means the organization is involved in advocacy or public policy in some way, which also significantly influences pay.
Where does your salary fit in with the dataset?
Once a dataset has been created of similar organizations, it's not enough to find just the median or average in that dataset. Thoughtful consideration should be given to the level at which executive pay should fall in line with the dataset. Should pay be right in the middle? A bit higher than the median? Or at the 75th percentile?
This is a question that can only be answered by the executive and the organization, but there are salient factors to be considered:
-- The executive’s contribution toward the association’s goals.
-- The organization’s vision for the next five or ten years.
-- The importance of continuity and retention of leadership in the organization.
(For instance, if an organization chooses to pay its executive in the middle of a pay range of similar groups, that executive may be lured away for a higher compensation package.