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The Overhead Trap:
An Executive Director Roundtable
On May 17, 2004 Bridgestar convened a roundtable discussion of the executive directors of 15 member organizations to discuss the results of our study of compensation practices among Bridgestar members, which appeared in our May 2004 newsletter. The group spent an hour and a half discussing their own compensation practices, the internal and external pressures that affect their practices, and how increased donor attention to ‘overhead’ issues affects both their strategy and their communication. Here are some highlights of the conversation:
Comments on how compensation is tied to performance:
- One attendee said that his organization bases salary increases around a 4% yearly cost of living increase. They then tie bonuses and raises to performance. They are on a performance based 1% - 10% scale.
- Some attendees thought that there may be some difficulty/differences when reviewing EDs that are founders vs. the way a board would review 2nd or 3rd generation EDs.
- Many thought that review methodology for EDs is based on the life cycle of the Board.
- How meaningful is the raise that is tied to performance when it is only 1 – 2%? Does this really motivate someone?
- With a very narrow range for salary changes, does compensation ability actually then drive the way someone is reviewed? Would the review be less good if the organization can’t afford to pay someone a comparable salary increase?
Comments on compensation as a motivating factor. What is the degree of discomfort around believing in the mission vs. performance related salary increases in the nonprofit sector?
- The group wondered if EDs are still the highest paid individuals at the organization? An example when this is not the case is at hospitals.
- When attracting talent and people with a specialty how does this reflect on the salary of present employees? Do adjustments have to be made?
- How much is available for raises? Does anyone’s board say how much there is at the front end?
- It is often a struggle to keep salaries competitive or matched to the outside world in an effort to keep people from leaving.
- Bonuses aren’t popular in the nonprofit sector, especially above 10 – 15%. All government and some contractors can’t accept bonuses, only pay raises.
- One time bonuses have been done where the least paid people are given the biggest bonus. A great morale booster and an equalizer.
- One organization waits until the end of the year to see what is left in the budget and then tries to distribute it. If they earmarked dollars up front for raises or bonuses it would appear on the budget and raise concern.
What are the multipliers in your organization? Does anyone think in terms of the Ben and Jerry’s idea of the CEO salary being no more than 7 times the lowest salary?
- One attendee had that conversation with her board regarding the market for direct service workers.
- There were ideas on ways to raise the salaries of those at the bottom, however other raised concerns that they can’t raise the bottom up because then the top keeps going up with it.
- One attendee felt that if you make investments at the higher level they’ll stay. While making an investment at a lower “burn-out” job it is wasted, as they will end up leaving anyway. Regardless you’ll have to rehire so better to spend the raises on the higher-level staff.
- The question was raised: What can you do in addition to compensation to make salaries better?
How many are hearing from donors with regards to overhead?
- Some were noticing a more detailed level of interest in the compensation of the organization.
- Some funders will say a maximum percent of the donation may be used for overhead. This makes it hard to find folks for higher positions because it limits the compensation.
- Individuals don’t ask that much. Bigger funders are best dealt with by heading off the question before it is asked and bring up the importance of salary and talent.
- Sometimes they are compared to others. A funder will say that they heard one organization spends 10% on administrative fees and how much do they spend? If you are able to get in font of the funder and explain your vision and need they will sometimes ‘get it’ otherwise it is difficult to convince them.
Is it helpful to use Charity Navigator or GuideStar for metrics?
- Many people were annoyed by these metrics and saying that it is THE way to evaluate an organization.
- A funder often requires more accounting and reporting but yet wants you to spend less on administrative fees. What is the overhead for the grants that you receive and to maintain the relationship?
How has the sector been portrayed?
- Trying to find individual angels and venture philanthropy are two newer ways that some of these organizations were trying to raise funds without large foundations.
- Explaining to foundations why they should pay for grants to fund infrastructure, board recruitment, consultants etc… is extremely hard. Expectations are skyrocketing, the money for these sophisticated analytical needs and how do you get the funders to do more than one donation to fund this? You need them to fund this year after year – there is no 6-month turn around.
- Organizations that go through this analysis are still being compared to those that do not and they are seen as having equal data and those organizations much different than themselves. Where if the organization that was not using sophisticated (expensive) evaluation processes started to use it their numbers would drop.
- How much/how do you educate your funders. They often will not take your call or you don’t have face time. Donors are often not interested in this.
- The education role in the ED’s fundraising is increasing.
Building respect for management in the sector
- It is difficult to hire a diverse staff with low compensation. Paying little often gets you people who are not concerned with the future as much and often have a middle class safety net of family or previous earnings. Boston is an especially hard place to hire a diverse staff on low pay.
- It is more than just the money; it is the environment, schedule etc… everything has to be at its best.
The Overhead Trap: An Executive Director Roundtable
This work by The Bridgespan Group is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. Permissions beyond the scope of this license are available on Bridgespan's Terms and Conditions page.