Economic Development Organization Chief Executive Officer Bonus Structure
Nonprofit organizations typically offer compensation weighted heavily towards base salary, but in recent years, nonprofit CEO bonuses have become a more significant part of executive compensation. An IEDC member who is an executive placement consultant estimates that a handful of midsize to large organizations currently have a structured CEO bonus structure plan in place. Of those EDOs, the average total bonus compensation ranges from $10K to $30K or approximately 10% of the CEO’s base pay.
Developing a Bonus Structure
As its first step in setting up structured CEO bonus plan, an economic development organization board should decide whether to create a compensation task force to manage the process or engage the entire board in developing the plan. This is not a one size fits all decision. It can vary depending on the size, time commitments, and individual talents of the organization’s board members. Secondly, the task force/board must determine how much funding is available to support a bonus compensation package.
Once the board has decided how it will move forward and the amount of funding it has available, it should review the written job description for the CEO position and the CEO’s past performance evaluations. These documents should have been written in a way that lists job functions as actionable and measurable tasks such as "generate new leads, increase membership, and participate in public speaking engagements to raise the organization’s profile.” These job function descriptions can serve as the basis for measuring the CEO’s performance and determine the CEO’s bonus earnings.
Engaging the CEO
Members of the task force/board should meet with the CEO and review the job description and performance evaluations to insure that both parties agree that the tasks listed accurately portray the CEO’s job functions. Note that it is essential that all parties understand and agree with the written description. If not, the board and the CEO should work together to redefine it to better fit the day-to- day realities of the job.
Creating Metrics
Once all parties are satisfied with the description of the job functions, the board/task force should seek the CEO’s input on what functions that he/she feels are most important to the mission of the organization. Additionally, the board/task force should seek the CEO’s input on reasonable numerical goals to apply to each job function. In cases where past job performance evaluations include metrics, the numbers can lifted from the evaluation. The board/task force should consider the CEOs input when determining the importance of each measurable job function and use those tasks to set baseline numbers that must be matched to qualify for bonus compensation. “High water mark” numbers should also be applied to each measurable job function task that, if met or exceeded, will enable the CEO to receive a maximum bonus package. For example, the CEO might be required to initiate contact with 30 life science businesses per calendar year to qualify for a portion of their bonus and exceed 45 contacts per calendar year to gain the maximum amount of money for that portion of their bonus. This can be done with several metrics with the funds from each task tallied together to make up the entire bonus compensation package.