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2013 CEO Compensation Study

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The 2013 presentation by Dr. Charlie Quatt on the NAM sponsored CEO Compensation Study.

The 2013 presentation by Dr. Charlie Quatt on the NAM sponsored CEO Compensation Study.

Published in: Business, Economy & Finance

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  • 1. Current Developments in Association CompensationMay 15, 2013National Association of Manufacturers Council of Manufacturing AssociationsCharles W. Quatt, Ph.D.PresidentQuatt Associates, Inc.2233 Wisconsin Avenue, NWSuite 501Washington, DC 20007(202) 342 1000 x. 103cquatt@quatt.com
  • 2. 2Discussion Topics NAM CMA Survey Trends NAM CMA Survey New Data – CEO Compensation and Benefits Approaches to Market Pricing: Defining the Marketplace Using Survey Data Current Trends in Executive Compensation Governance Trends
  • 3. 3NAM CMA Survey Trends Participation decreased slightly between 2012 and 2013 but still remains high.5771 70 6812 10 962010 2011 2012 2013Operating AssociationsOrganizations Represented byAssociation ManagementCompanies
  • 4. 4NAM CMA Survey Trends The participant group’s median operating budget increased dramatically in 2013. This change isprimarily due to number of new participants.$4,500,000$3,307,594$3,538,925$5,300,0002010 2011 2012 2013
  • 5. 5NAM CMA Survey Trends Among organizations that participated for the last four years budgets have steadily increased since2010.2010 to 2011 Change:13%2011 to 2012 Change:4%2012 to 2013 Change:3%Overall Change2010-2013: 21%
  • 6. 6NAM Survey Trends among Four Year Survey ParticipantsChange in Average Total Cash Compensation2010-2013 (Among 19 Common Participants)Change/ 2010to 2011Change/ 2011to 2012Change/ 2012to 2013Overall Change2010 to 2013Chief Executive Officer 1.6% 5.9% 4.9% 12.4%Second Highest Paid 4.8% 4.4% 3.4% 12.6%Third Highest Paid 3.3% 5.7% 3.9% 12.9%
  • 7. 7NAM Survey Trends – Incentive Compensation PracticesPercentage Awarding Incentive Compensation 2010-2013(All Participants by Budgetary Category)2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013Chief Executive Officer 43% 67% 71% 79% 67% 65% 75% 79% 86% 88% 95% 95%All Survey Positions 39% 60% 59% 63% 62% 61% 69% 74% 72% 82% 83% 87%$2.5 to $7.5 MillionLess than $2.5 MillionGreater than $7.5Million
  • 8. 8NAM Survey Trends – Incentive Compensation PracticesCEO 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”2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013Chief Executive OfficerQ1 12% 8% 6% 8% 9% 6% 4% 7% 12% 9% 4% 8% 10% 16% 17% 28%Median 20% 14% 11% 20% 16% 10% 8% 9% 20% 13% 10% 13% 14% 17% 27% 32%Average 21% 16% 18% 32% 19% 13% 15% 10% 18% 16% 18% 15% 20% 21% 23% 42%Q3 23% 20% 24% 25% 24% 18% 10% 11% 23% 26% 21% 17% 22% 26% 26% 34%Greater than $7.5 M$2.5 to $7.5 MLess than $2.5 MAll Participants
  • 9. 9NAM Survey Trends – Incentive Compensation PracticesExecutive 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”2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013ExecutivesQ1 4% 5% 4% 6% 2% 2% 2% 3% 4% 4% 3% 4% 9% 5% 12% 15%Median 8% 7% 10% 11% 3% 4% 4% 5% 7% 6% 6% 7% 11% 8% 13% 17%Average 13% 14% 16% 21% 6% 5% 7% 8% 10% 12% 14% 16% 16% 16% 19% 21%Q3 14% 9% 14% 16% 6% 8% 9% 9% 11% 8% 10% 12% 15% 18% 17% 20%All Participants Less than $2.5 M $2.5 to $7.5 M Greater than $7.5 M
  • 10. 10NAM Survey Trends – CEO Deferred CompensationPercentage Awarding Deferred Compensation 2013(All Participants and by Budgetary Category)All Participants Less than $2.5Million$2.5 to $7.5 Million Greater than $7.5Millionn 16 of 58 2 of 19 4 of 19 10 of 20Percentage Providing 28% 7% 21% 50%Median Award $30,000 na* $34,625 $72,840Median Award as Percentage of Salary 13% na* 15% 17%Average Award $65,473 na* $28,917 $87,207Average Award as Percentage of Salary 20% na* 12% 16%*Insufficient data to report
  • 11. 11NAM Survey New Data - CEO CompensationCompensation Levels Distribution CEO Compensation levels are closely linked with organization size among NAM CMAparticipants. The 2013 NAM CMA participant group displayed an R2 value of 0.43 whichindicates that there is a correlation between budget size and compensation levels.CompensationOrganization Budget (in millions)R² = 0.434$0$100,000$200,000$300,000$400,000$500,000$600,000$700,000$800,000$900,000$1,000,000$1,100,000$1,200,000$1,300,000$1,400,000$1,500,000$1,600,000$1,700,000$1,800,000$1,900,000$0 $5 $10 $15 $20 $25 $30 $35 $40Millions
  • 12. 12NAM Survey New Data - CEO CompensationCEO Total Compensation 2013 marks the first time we are able to report on CEO total compensation which includes thevalue of all benefits and perquisites in addition to cash awards and salary.n Median AverageTotal Compensation ** 56 $293,029 $416,692Total Compensation ** 19 $218,467 $229,494Total Compensation ** 19 $280,594 $339,668Total Compensation ** 18 $613,976 $695,593** Total Compensation includes base salary, extra cash compensation (incentive or bonus), as well as the reported valueof all benefits and perquisites provided by the organization on the CEOs behalf.All Associations (Median Budget = $5,059,075)Budgets less than $2.7 million(Median Budget = $1,600,000)Budgets from $2.7 to $6.9 million(Median Budget = $5,200,000)Budgets greater than $6.9 million(Median Budget = $20,000,000)
  • 13. 13NAM Survey New Data - CEO BenefitsCEO Benefits 2013 also marks the first time we are able to report on CEO benefits and their associated value. The data provided by participants for defined benefit and defined contribution plans is ofparticular interest.All Associations (Median Budget = $5,059,075)n % Q1 Median Q3 AverageDefined Benefit (Pension) PlansDoes your organization provide a defined benefit (pension) plan?Yes 6 11%No 50 89%Defined Contribution PlansDoes your organization provide a defined contribution plan to the CEO?Yes 54 95%No 3 5%Total defined retirement contribution from organization as percentage of basesalary-All Respondents48 84% 4.1% 6.5% 10.0% 7.1%Among organizations with budgets less than $2.7 million 15 26% 5.0% 8.0% 10.0% 7.2%Among organizations with between $2.7 and $6.9 million 16 28% 3.3% 6.0% 9.0% 6.5%Among organizations with budgets greater than $6.9 million 17 30% 5.3% 8.0% 10.0% 7.5%
  • 14. 14Approaches to Market Pricing: Defining the Marketplace Defining the peer group of market comparators is the most crucial step in market pricing as theselection of the peer group has received increasing scrutiny by Board members, the public, andother 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
  • 15. 15Approaches to Market Pricing: Defining the Marketplace Peer group selection in not-for-profit organizations can be challenging Starting with specific criteria is essential when creating an appropriate and relevant peer group Typically it is helpful to develop a market pricing protocol tailored to the position or category ofpositions reflective of the labor market for talentElement Potential ApproachesMission and Sector  Potential organizations should be within similar industry sector and they should have comparabletypes of operationsScope  The peer group should reflect the size of the organization in: Revenue/operating budget Number of employees The selected group may reflect the organization’s current size as well as its projected sizeLabor Market  Labor markets in which the organization currently (or in the future) competes for talent may betaken into consideration in the peer group This may result in different peer groups for different types and levels of positions in anorganizationGeographic Locations  Where the organization is located may also be a consideration in developing a peer group: Note that executive positions typically have a national reference market; geographic location ismore relevant below the executive levelDegree of Complexity  The peer group should also reflect the organization’s mission and the complexity of fulfilling thatmission
  • 16. 16Using 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
  • 17. 17Setting 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
  • 18. 18Broader Marketplace Trends vs. NAM CMA Members –Base Salary Projected Salary Increase Comparison (2011-2013):Total Salary Increases 2 2011 Projected Data(Obtained in October 2010)2012 Projected Data(Obtained in October 2011)2013 Projected Data(Obtained in October 2012)General NFP Chief Executive 3.0% 3.0% 3.0%NAM CMA Members Only 3.0% 3.0% 3.5%General NFP Executives 3.0% 3.0% 3.0%NAM CMA Members Only 3.0% 3.0% 3.0%General NFP Staff 3.0% 3.0% 3.0%NAM CMA Members Only 3.0% 3.0% 3.5%Percentage of NFP Organizations HoldingSalaries Flat8.8% 5.9% 5.7%NAM CMA Members Only 6.4% 4.7% 3.1%Median Results of Quatt Associates Salary Planning Survey11Data are salary increases measured as a percentage of salary budget, not as a percentage of incumbent salary.2Results include organizations reporting holding salaries flat.
  • 19. 19Broader 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 subjectivemethodologies 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 assessmentscore
  • 20. 20Broader Marketplace Trends – Governance Increased level and demands of governance related to executive compensation and performanceassessment 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 anddecision processes Documented defensibility
  • 21. 21Board 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 andcompensation 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 compensationand staff compensation Perceived fairness on the part of observers, including: The Board members The stakeholders The public
  • 22. 22Quatt Associates Background Information Quatt Associates is a management consulting firm dedicated to serving the not-for-profit sector. Our practiceincludes: Executive compensation systems, including performance-based award plans and deferred compensationplans. We also conduct intermediate sanctions reviews, including analysis of compensation and benefitspractices. We have published a book on executive compensation for not-for-profit organizations, NonprofitExecutive Compensation: Planning, Performance, and Pay. Executive performance systems. We assist organizations in establishing institutional and executiveperformance objectives and measures, including development of leadership assessment processes andtools. We also develop guidelines and processes for boards of directors to assess and manage executiveperformance. Job classification, salary administration, and compensation systems, including career pathing systems,customized reward systems, and performance-based compensation systems. We conduct annualcompensation surveys of not-for-profit organizations. Assisting organizations in establishing staff performance objectives measures and systems. We providetraining on performance management and coaching to ensure effective program implementation. Conducting strategic and business process planning and working with boards on effective boardmanagement and development. Working with both individual executives and leadership teams to improve their effectiveness in managingthe organization. We develop succession planning programs to support effective institutionaldevelopment and management succession.
  • 23. 23Quatt Associates Contact InformationCharles W. Quatt, Ph.D.PresidentQuatt Associates, Inc.2233 Wisconsin Avenue, NWSuite 501Washington, DC 20007(202) 342 1000 x. 103cquatt@quatt.comJonathan CovingtonConsultantQuatt Associates, Inc.2233 Wisconsin Avenue, NWSuite 501Washington, DC 20007(202) 386 7624jcovington@quatt.com