Replacing a Chief Executive Officer is a challenge that faces every Board – some more often than they would like – and when it is replacing a longstanding much-loved CEO of a Not-for-Profit (NFP), the risks are higher and emotions often amplified.
Whether that process is a success depends on many aspects. One of the key discussions that needs to take place prior to beginning an executive search is what an ideal candidate will look like.
New considerations for NFP executive search
Boards often consider playing it safe with someone who looks and sounds familiar, but there is a growing voice at the NFP Board level to explore outside of the usual talent pool. Often this is a response to the growing sustainability pressure on NFPs operating in the aged-care, disability and community health sector. Boards are navigating rocky horizons of change, market pressure and client expectations.
The cookie-cutter or like-for-like candidate will have their inherent benefits: understanding of the market and industry, reduced ramp-up speed, credibility, and will instil confidence because of their experience. On the other hand, the notion of seeking candidates from a different industry brings with it a number of perceived benefits – fresh eyes unencumbered by biases, a proven record of leadership success in a different industry, structured corporate discipline, the list goes on.
The dream of many an NFP Board member is obtaining a battle-hardened, commercially savvy CEO. There’s an allure to finding someone who can translate past successes from a for-profit, private sector world into operational leadership of an organisation with Board members passionate about the organisation and what they do.
The transition from desire to reality, however, does have obstacles.
The challenge for NFP executive search
The reality of obtaining this “grass is greener” CEO comes with the realisation that such talent will come at a cost that is usually beyond what the NFP organisations can afford or feel they can justify to their executive or their stakeholders. When an organisation – be it health, social justice, community or the arts – relies at least partially on Government funding, this issue matters.
But there is good news. Many candidates who are considering a shift from the private sector to NFP possess a level of personal affinity or resonance with the industry. This could be a love of the arts, a personal passion for social justice or a connection to the health condition they are trying to champion. Should such an attraction exist, and candidates are willing to take that proverbial remuneration haircut, this is still typically above what the organisation is able to pay to attain such a candidate.
Creative approach to CEO remuneration for NFPs
So what should a Board do? Get creative. Look beyond remuneration. Consider structuring packages with flexible working hours or extra annual leave. Committed CEOs tend to put in far more hours than a traditional working day and the ability to spend more time with family is a major drawcard. Having a CEO with a flexible working life also signals down throughout the organisation that flexibility is possible. This will assist in attracting other talented staff while adding diversity to your candidate pool who may not be available for the job otherwise.
Depending on the status of the organisation, the availability of salary packaging (the ability to apportion some of the pre-tax salary into superannuation or loan arrangement) continues to be an effective attraction tool in the NFP leadership toolkit.
The ability to retain real value but reduce the taxable income is an effective option that allows organisations to spend less on the salary component but allows candidates to reap the benefits of a higher salary bracket.
There are limits to salary packaging – only around AU$15,000 can be salary-sacrificed in a year. And it is largely not well understood outside the executive search sector. It’s essential to have fact sheets and a well-informed human resources manager available for discussions.
The issues of bonuses remain hotly contested – how to calculate, on what basis, and their existence at all. In the private sector, CEOs are commonly remunerated with a split of fixed income and performance-related bonus, at least a portion of which is based on some level of revenue generation.
Special considerations required for NFP CEOs
This is less straightforward in the NFP world, where CEOs are still required to generate revenue through increased philanthropic/donor engagement. The optics of having a percentage of the donated amount go into a performance bonus is not well received. This is especially true when the purpose of such donations are meant to contribute to a cause struggling for funds – social justice, medical research, arts. There is no clear answer here and the debate continues on how a performance-based salary may incentivise the right candidate. The package needs to appease all parties and all parties need to get creative in a realistic way. The best way to start this conversation is to only pay bonuses from “super surpluses’, where the CEO outperforms the revenue target.
Landing that special cross-industry candidate may or may not bring all the benefits the Board is seeking from a fresh, commercially savvy CEO. The Board must be ready for robust and honest discussions around the remuneration package options and the limits of the package. Boards that have not done the preparatory work may find themselves losing great candidates. If the conversations with potential CEOs get mired in detail and confusion, candidates may perceive this as lacking professionalism. After all, it is not just Boards that do their due diligence; good candidates are just as diligent.
Ensuring they are well prepared will give Boards their best chance to attract and retain that CEO who will bring immense value to their organisation.