Annual Survey for the CEO's of the Council of Manufacturing Associations.

1. Current Developments in Association Compensation
National Association of Manufacturers Council of Manufacturing Associations
July 12, 2012
Charles W. Quatt, Ph.D.
President
Quatt Associates, Inc.
2233 Wisconsin Avenue, NW
Suite 501
Washington, DC 20007
(202) 342 1000 x. 103
cquatt@quatt.com

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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.

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NAM CMA Survey Trends
 Survey median budgets have decreased since 2009 due to increased number of data points.

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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.

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NAM Survey Trends among Four Year Survey Participants
Change in Average Total Cash Compensation
2009-2012 (Among 22 Common Participants)
Change/ 2009 Change/ 2010 Change/ 2011 Overall Change
to 2010 to 2011 to 2012 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 Trends
Overall Survey: Change in Average Total Cash Compensation
2009-2011 (All Participants by Budgetary Category)
Less than $2.5 $2.5 to $7.5 Million Greater than $7.5 Million
2009-2010 2010-2011 2011-2012 2009-2012 2009-2010 2010-2011 2011-2012 2009-2012 2009-2010 2010-2011 2011-2012 2009-2012
Change Change Change Change Change Change Change Change Change Change Change 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%
Number of Participants by Budgetary Category 2009-2012
Less than $2.5 Million $2.5 to $7.5 Million Greater than $7.5 Million
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

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NAM Survey Trends
CEO Incentive Compensation Awards as Percentage of Base Salary
(All Participants and by Budgetary Category)
All Participants Less than $2.5 M $2.5 to $7.5 M Greater than $7.5 M
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%
Please note that incentive survey results do not include organizations reporting “0”

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NAM Survey Trends
Executive Incentive Compensation Awards as Percentage of Base Salary
(All Participants and by Budgetary Category)
All Participants Less than $2.5 M $2.5 to $7.5 M Greater than $7.5 M
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%
Please note that incentive survey results do not include organizations reporting “0”

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NAM Survey Trends – Incentive Compensation Practices
Percentage Awarding Incentive Compensation 2009-2011
(All Participants by Budgetary Category)
Greater than $7.5
Less than $2.5 Million $2.5 to $7.5 Million
Million
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%

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NAM Survey Trends – CEO Deferred Compensation
Percentage Awarding Deferred Compensation 2012
(All Participants and by Budgetary Category)
All Participants Less than $2.5 $2.5 to $7.5 Million Greater than $7.5
Million 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

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Broader Marketplace Trends – Base Salary
 Projected Salary Increase Comparison (2010-2012):
Median Results of Quatt Associates Salary Planning Survey 1
2 2010 Projected Data 2011 Projected Data 2012 Projected Data
Total Salary Increases
(Obtained in October 2009) (Obtained in October 2010) (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%
Percentage of Organizations 36.4% 8.8% 5.9%
Holding Salaries Flat
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.

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Broader 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

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Board 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. Jonathan Covington
President Consultant
Quatt Associates, Inc. Quatt Associates, Inc.
2233 Wisconsin Avenue, NW 2233 Wisconsin Avenue, NW
Suite 501 Suite 501
Washington, DC 20007 Washington, DC 20007
(202) 342 1000 x. 103 (202) 386 7624
cquatt@quatt.com jcovington@quatt.com