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Current Developments in Association Compensation
July 12, 2012
National Association of Manufacturers Council of Manufacturing Associations
Charles W. Quatt, Ph.D.PresidentQuatt Associates, Inc.2233 Wisconsin Avenue, NWSuite 501Washington, DC 20007(202) 342 1000 x. [email protected]
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Discussion Topics
National Association of Manufacturers Council of Manufacturing Associations Survey Trends
Approaches to Market Pricing: Defining the Marketplace Using Survey Data Current Trends in Executive Compensation Governance Trends
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NAM CMA Survey Trends Participation has remained high in 2012 and has risen by 46% since the
survey’s inception in 2009.
Number of Participants (by Year)
50
57
71 70
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12 10 9
2009 2010 2011 2012
Operating Associations
Organizations Represented byAssociation ManagementCompanies
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NAM CMA Survey Trends Survey median budgets have decreased since 2009 due to increased number
of data points.
Median Budget Among All Participants (by Year)
$4,800,000$4,500,000
$3,307,594$3,538,925
2009 2010 2011 2012
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NAM CMA Survey Trends Among organizations that participated all four years; budgets dipped in 2010
but have recovered to prerecession levels.
Median Budgets Among Common Participants (by Year)
$4,207,000
$3,550,000
$4,197,000$4,438,925
2009 2010 2011 2012
6NAM Survey Trends among Four Year Survey Participants
Change in Average Total Cash Compensation 2009-2012 (Among 22
Common Participants)
Change/ 2009 to 2010
Change/ 2010 to 2011
Change/ 2011 to 2012
Overall Change 2009 to 2012
Chief Executive Officer -1.2% 1.8% 9.0% 9.6%
Second Highest Paid -2.8% 5.0% 4.6% 6.8%
Third Highest Paid 0.2% 3.6% 5.6% 9.4%
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NAM Survey TrendsOverall Survey: Change in Average Total Cash
Compensation 2009-2011 (All Participants by Budgetary
Category)2009-2010 Change
2010-2011 Change
2011-2012 Change
2009-2012 Change
2009-2010 Change
2010-2011 Change
2011-2012 Change
2009-2012 Change
2009-2010 Change
2010-2011 Change
2011-2012 Change
2009-2012 Change
Chief Executive Officer 6.5% 4.5% -4.6% 6.4% 12.7% 5.2% 0.9% 18.8% -4.0% 3.6% 14.9% 14.5%
Second Highest Paid 10.5% -7.7% 4.0% 6.8% 3.5% 5.1% -1.0% 7.5% 3.7% 6.4% 3.1% 13.2%
Third Highest Paid 7.2% -3.8% 4.6% 8.0% 12.9% 0.0% 0.1% 13.0% -3.4% 15.3% 2.2% 14.1%
$2.5 to $7.5 MillionLess than $2.5 Greater than $7.5 Million
Number of Participants by Budgetary Category 2009-2012
2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012
Chief Executive Officer 18 27 23 28 15 18 23 20 16 14 16 21
Second Highest Paid 17 19 21 26 15 17 21 19 16 14 14 21
Third Highest Paid 14 17 20 23 15 15 21 18 16 11 13 20
Less than $2.5 Million $2.5 to $7.5 MillionGreater than $7.5 Million
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NAM Survey Trends
CEO Incentive Compensation Awards as Percentage of Base Salary (All Participants and by Budgetary
Category)
Please note that incentive survey results do not include organizations reporting “0”
2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012
Chief Executive Officer
Q1 7% 12% 8% 6% 5% 9% 6% 4% 6% 12% 9% 4% 15% 10% 16% 17%
Median 14% 20% 14% 11% 8% 16% 10% 8% 11% 20% 13% 10% 21% 14% 17% 21%
Average 15% 21% 16% 18% 11% 19% 13% 15% 11% 18% 16% 18% 24% 20% 21% 23%
Q3 20% 23% 20% 24% 17% 24% 18% 10% 16% 23% 26% 21% 30% 22% 26% 26%
Greater than $7.5 M$2.5 to $7.5 MLess than $2.5 MAll Participants
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NAM Survey Trends
Executive Incentive Compensation Awards as Percentage of Base Salary (All Participants and by Budgetary
Category)
Please note that incentive survey results do not include organizations reporting “0”
2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012
Executives
Q1 4% 4% 5% 4% 5% 2% 2% 2% 4% 4% 4% 3% 6% 9% 5% 12%
Median 7% 8% 7% 10% 6% 3% 4% 4% 5% 7% 6% 6% 12% 11% 8% 13%
Average 10% 13% 14% 16% 7% 6% 5% 7% 6% 10% 12% 14% 15% 16% 16% 19%
Q3 13% 14% 9% 14% 10% 6% 8% 9% 7% 11% 8% 10% 19% 15% 18% 17%
All Participants Less than $2.5 M $2.5 to $7.5 M Greater than $7.5 M
10NAM Survey Trends – Incentive Compensation Practices
Percentage Awarding Incentive Compensation 2009-2011 (All Participants
by Budgetary Category)
2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012
Chief Executive Officer 67% 43% 67% 71% 73% 67% 65% 75% 81% 86% 88% 95%
All Survey Positions 58% 39% 60% 59% 47% 62% 61% 69% 77% 72% 82% 83%
$2.5 to $7.5 MillionLess than $2.5 MillionGreater than $7.5
Million
11NAM Survey Trends – CEO Deferred Compensation
Percentage Awarding Deferred Compensation 2012 (All Participants
and by Budgetary Category)All Participants Less than $2.5
Million$2.5 to $7.5 Million Greater than $7.5
Million
n 15 of 69 2 of 28 4 of 20 9 of 21
Percentage Providing 22% 7% 20% 43%
Median Award $35,000 na* $27,000 $75,680
Median Award as Percentage of Salary 15% na* 10% 19%
Average Award $72,807 na* $31,365 $102,294
Average Award as Percentage of Salary 25% na* 11% 22%
*Insufficient data to report
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Approaches to Market Pricing: Defining the Marketplace Defining the peer group of market comparators is the most crucial step in
market pricing as the selection of the peer group has received increasing scrutiny by Board members, the public, and other stakeholders.
Factors in developing an accurate and defensible comparator peer group: Organizations with similar
Mission Location Scope
Budget Staff size
Impact Similar talent pool for executive attraction/retention
Specific characteristics of the executive Work history, professional background, other (e.g., political
background) Education and experience requirements Time in position
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Using Survey Data Understand the database Ensure sufficient number of data points Identify the most comparable positions in the survey Understand use of base salary versus total cash compensation in selecting
survey data
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Setting Executive Compensation Levels When setting compensation levels for the CEO and other senior positions,
consider:
Compensation philosophy
Organization financial status and affordability of executive compensation
Internal pay practices among executives and staff
Board opinion
15Broader Marketplace Trends – Base Salary
Projected Salary Increase Comparison (2010-2012):
Total Salary Increases 2 2010 Projected Data (Obtained in October 2009)
2011 Projected Data (Obtained in October 2010)
2012 Projected Data (Obtained in October 2011)
Chief Executive 2.1% 3.0% 3.0%
Executives 2.1% 3.0% 3.0%
Staff 2.3% 3.0% 3.0%
36.4% 8.8% 5.9%
Median Results of Quatt Associates Salary Planning Survey1
1 Data are salary increases measured as a percentage of salary budget, not as a percentage of incumbent salary.2 Results include organizations reporting holding salaries flat.
Percentage of Organizations Holding Salaries Flat
16Broader Marketplace Trends – Annual Incentive Continued and growing use of incentive compensation plans. Focus on ensuring:
Goals are defined relative to mission and strategy.
Incentive levels are supported by meeting financial goals
Plan is driving the right types of results and leadership behaviors
Incentive payouts (individually and in total) correspond to the level of performance achieved
More organizations are using formal, objective-based, formula-driven plans rather than subjective methodologies to determine awards
The best formula-driven plans have formal plan documents and define:
Formal tie between performance goals and the compensation plan
Measurements for success – both an institutional “scorecard” and a leadership assessment score
A few organizations have developed long-term incentive plans
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Broader Marketplace Trends – Long Term and Retention Incentive Plans The prevalence of long-term incentive plans (LTIPs) has been increasing in
the last few years. LTIP’s are often structured in 457(f) plans. The main objectives of LTIPs are to reward long-term performance and
promote executive retention. Award amounts are usually much lower than in for-profits, where they can
generate a significant portion of an executive’s pay package.
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Broader Marketplace Trends – Governance
Increased level and demands of governance related to executive compensation and performance assessment due to:
Increased availability of compensation information through the new 990 reporting requirement
Significantly greater scrutiny of compensation data by the public, stakeholders, the press, government and internal staff
Board Committees, not individual Board Chair, making decisions
Greater engagement of full Board
New 990’s ask if all Board members have received the 990.
Greater practice in documenting compensation philosophy, system, annual performance and decision processes
Documented defensibility
19Board Compensation Decision Making Factors Factors for determining appropriate executive compensation
Market value of the position
Pay trends in the sector in which board members and stakeholders operate
Compensation trends among peer organizations and in the geographical area
Contract terms and compliance with the established compensation philosophy and compensation system, including the pay for performance system
The performance of the organization, including its financial performance
Staff compensation practice, for example the differential between executive compensation and staff compensation
Perceived fairness on the part of observers, including:
The Board members
The stakeholders
The public
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Quatt Associates Background Information Quatt Associates is a management consulting firm dedicated to serving the not-for-
profit sector. Our practice includes:
Executive compensation systems, including performance-based award plans and deferred compensation plans. We also conduct intermediate sanctions reviews, including analysis of compensation and benefits practices. We have published a book on executive compensation for not-for-profit organizations, Nonprofit Executive Compensation: Planning, Performance, and Pay.
Executive performance systems. We assist organizations in establishing institutional and executive performance objectives and measures, including development of leadership assessment processes and tools. We also develop guidelines and processes for boards of directors to assess and manage executive performance.
Job classification, salary administration, and compensation systems, including career pathing systems, customized reward systems, and performance-based compensation systems. We conduct annual compensation surveys of not-for-profit organizations.
Assisting organizations in establishing staff performance objectives measures and systems. We provide training on performance management and coaching to ensure effective program implementation.
Conducting strategic and business process planning and working with boards on effective board management and development.
Working with both individual executives and leadership teams to improve their effectiveness in managing the organization. We develop succession planning programs to support effective institutional development and management succession.
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Quatt Associates Contact Information
Charles W. Quatt, Ph.D.
President
Quatt Associates, Inc.
2233 Wisconsin Avenue, NW
Suite 501
Washington, DC 20007
(202) 342 1000 x. 103
Jonathan Covington
Consultant
Quatt Associates, Inc.
2233 Wisconsin Avenue, NW
Suite 501
Washington, DC 20007
(202) 386 7624
