Evaluating nonprofit impacts

How Do Nonprofits Determine CEOs’ Productivity?

How Do Nonprofits Determine A CEOs’ Productivity?

By: Eugene Fram         Free Digital Image

Nonprofit organizations can’t have bottom line profits. If they did, CEO productivity determination could be less complicated. Determining a fair CEO benefit, based on productivity, can be a complex issue for a nonprofit board. Providing too little or too much can be dangerous for the organization and possibly the board members. Although the spadework for benefits needs to be done by a small committee, the entire board needs to fully agree on the rationale for the final decision.

Following are some of significant challenges that I have noted nonprofit boards face when determining CEO benefits.

Evaluation Failure: Some CEOs might receive high benefits because a series of boards have not effectively evaluated her/h performance. It is not unusual to find CEOs who have not been formally and effectively evaluated for years. They are held in position because they are “minding the store,” not being professional managers.

Market Forces: Nonprofit organizations are restricted by law from providing their CEOs with excess benefits. (Section 4958 – IRS Code) As a result, the benefits offered the CEO must reflect a market level found in the geographic area and/or the person’s professional qualifications. For example, nonprofit health insurance organizations have to compensate CEO at levels that are competitive with for-profit organizations. In my opinion, unusual CEO benefits that are hard to justify market-wise are invitations for an IRS inquiry

Board Relationships: Obviously having a good, not perfect, interrelationship with the constantly changing board membership is critical to support a reasonable benefit level. It is especially important in association type nonprofits where the person holding the board chair position changes annually. I recently encountered one board chair who, although being very pleased with the CEO’s performance, expressed a concern that the CEO did not have good communications with board members. The chair welcomed a suggestion that the board might engage a professional coach to help the CEO work on the issue.

Additional Benefits: Although not usual in the nonprofit environment, special benefits can be offered the CEO, especially if they relate to job performance. These can range from special insurance coverage to extensive travel benefits , educational opportunities. or even housing and entertainment allowances. If involved with fundraising, like a college president, housing and entertainment benefits may be appropriate. In some unusual instances the person’s spouse or significant other may also receive compensation for time spent to benefit the nonprofit.

Nonprofit CEO: It is not unusual for the CEO to undervalue his/h own worth, especially when associated with a human services type of organization. This then keeps a cap on the whole salary scale and can make it difficult to hire capable people. Example: I encountered one CEO with degrees in human services and management areas plus 30 years of excellent experiences. Admired for his performance by peers in a nearby university, he refused to use that leverage to seek equitable compensation.

Personality: Now doubt a positive CEO personality can be an attribute in working with boards and staffs. But some nonprofit boards continue to support well-liked CEOs, even after they have been found to be involved with fraud. The board then has to be removed by state attorneys’ actions.

Nonprofit boards can do a poor job of determining CEO benefits because of inherent challenges. Evaluating critical qualitative outcomes and impacts, like improving life quality and successful advocacy, can be daunting. But it can be done in a fair manner.*  CEO benefits must in line with market levels and professional qualifications, or the directors can have a personal liability if they provide a excess ones. In the face of these challenges, some nonprofit board members simply pay lip service to the task and then follow a decision of the board chair.




Can Only Three Nonprofit Board Committees Engage Directors Meaningfully?

Can Only Three Nonprofit Board Committees Engage Directors Meaningfully?

By: Eugene Fram

Current research shows that the average nonprofit board has an average of 4.8 committees, down from 6.6 in 1994. * I suggest three standing committees. ** This three-standing committee configuration is flexible. Its strength is that it generates a coordinated robust review of the past board experiences to drive an emphasis on policy development and strategic planning. Organizations know where they have been, are thinking about the future but are not mired in micromanagement

    A Policy/Strategy Focused Board

Planning & Resource Committee: The CEO, working with the committee, is chiefly responsible for developing the nonprofit’s vision, subject to the input of staff plus the input and approval of the board. The group also plays an important role to make it easier to keep strategic planning and evaluation of new projects a prominent part of board agendas. At the same time, it also monitors the activities of all board task forces. These are work-groups of board and staff tasked with investigating policy or strategic issues. There, for example, is no separate personnel committee under this configuration, but if there is a need to revise a retirement plan for the organization, a task force is given the responsibility to review options for board discussion and decision.

Assessment Committee: If there is no finance committee, this group, along with the CEO, establishes organizational and budget goals. The committee subsequently conducts a robust evaluation of the CEO and organizational impacts, using both quantitative and qualitative impact data.

Executive Committee: The committee’s major function, outside of its legal obligations to act for the board between meetings, is to act as a review group for all reports emanating from the two other committees, fostering a high level of director engagement. This, for example, provides progress reviews at the task-force level, at one of the two standing committees and then at the executive committee level. All of this before an item is placed on the board. Most on the board have one or more opportunities to provide their suggestions and concerns. It is an engaging “no surprise” review system.

    Exceptions & Permutations Of The Three-Standing Committee Approach

State Regulations: Some states require separate standing finance and/or audit committees. If not, the assessment committee is responsible for the financial well being of the organization, and several members of the committee may act as an independent audit committee, meeting with the external or internal auditors as needed. Another way to meet state requirements is to have an audit committee composed of independent outside experts plus one or two board members. Former board members often are willing to volunteer, if they are familiar with the organization’s financial reports.

Strategic Planning Objectives: Some nonprofit boards use interim standing committees to reflect major objectives of the strategic plan. If a major building project is needed, a standing committee is formed to overview the project until it is completed. A new ad hoc configuration of four committees is formed.

Governance Considerations: Under the three-committee approach cited above, the executive committee acts as a governance committees and needs to overview governance issues such as board recruiting, board self-evaluations and occasionally establish task forces to review governance issues. “Donors are more likely to reward nonprofits with good board management, according to a 2014 study.[The study found donors took board education, training, and access to historical records into account as part of their considerations.” ***

Cyber security?: There are wide ranging view on whether or not a cyber security standing committee is needed. One side concludes the potential losses are so substantial in the 21st century that it needs substantial board attention. Others conclude that it is a major risk that needs to be monitored in connection with the probabilities of other types of major risks such a flood or fire.

Special Regulations: Some fields, such as healthcare, have special regulations for which a board is ultimately responsible. One approach is having a board committee overview the outcomes involved. But nonprofit boards, with a three-committee format can use task forces which to review compliance with the regulations.

My experience with this board committee configuration has proven it is productive and adaptable to making board structure changes. Prior to board action, the task force members and the two other groups reviewing reports become well versed in the options available. Since the topics reviewed are limited to policy and strategic opportunities/concerns, the board and staff members become meaningfully involved.

* BoardSource (2017), “Leading With Intent: A National Index of Nonprofit Board Practices,” January.

** https://goo.gl/QEL8x3


How Often Do Nonprofit Board Members Need to Question Strategic Norms?

How Often Do Nonprofit Board Members Need to Question Strategic Norms?

By Eugene Fram

A new nonprofit director has a lot to learn. Considering that his/h term of service will be relatively short (typically four to six years), he/s must quickly learn the “ropes” to participate in a meaningful way. In this process, colleagues and leadership will acquaint him/h with prevailing board systems and culture—often ignoring the depth of expertise she/h can employ. Example: An expert in financial strategies may be asked to assist the CFO with accounting details, far below the person’s skill level. Oftentimes the new board member also is greeted with a mantra that says, “We’ve always done it this way.” As the director moves in his path from novice to retiree, during a short tenure, there is little opportunity to suggest innovations that differ from the accepted fundamentals and to successfully advocate for change. (more…)