Executive Search

Setting the potential CEO’s salary too low can cost you time and money

Boards may never have to appoint a CEO, but if they do, then all members of the Board need to understand the long term consequences of their processes including setting the salary too low.


 Naively, many not-for-profit Board members think the task of recruiting a new CEO (or another senior executive) should not be too complex and as a result, do not seek professional advice. In the previous article, I outlined the situation where the Board gives scant heed to the discipline of setting a timetable for the CEO recruitment process, allowing for unplanned events to intervene and thereby extend the timeline, nor allowing for known steps, such as referee checks, and the period of notice that the preferred candidate is likely to have to give to his or her former employer. The consequences around an unusually long and undisciplined process can be that the Board fails to secure even the preferred candidate.

Consideration must also given to the appropriate level of salary to be paid (again a professional adviser can assist with market intelligence, but you can also access certain published information, usually for a fee. eg. Enterprise Care’s Remuneration Report.  Be careful, no matter how tight your organistion’s budget, avoid  setting the potential CEO’s salary too low.  If the salary wasn’t divulged at the outset, or an offer is made at its lowest range, then you may lose your preferred candidate  who decides not to accept the position after all.

One association that was facing many challenges as a consequence of changes in the retail sector, needed a new CEO who not only could help the association survive, but assist its members maintain sustainable businesses. The recruitment was an advertised process and the association was fortunate to attract several very good candidates who were attracted by the challenge. When the preferred candidate accepted in principle, the other candidates were advised they were unsuccessful in their applications. At that point, the President dealt with the preferred candidate without consulting his fellow executive members. He attempted to offer a less attractive salary package than was previously advised which was already low, but probably acceptable in an association not facing such huge challenges, nor in need of such a strategic overhaul. Not surprisingly, the potential CEO baulked at this high-handedness and breach of good faith, deciding that if the association and he could not reach mutual agreement before he had even started, this did not bode well for a future positive working relationship. The President should not have taken it upon himself to “drive a hard bargain” because his actions not only lost the association an excellent potential CEO, but all the other candidates as well, and caused a major rift on the Board itself, the consequences of which reverberated through the organisation for some years.

Another significant not-for-profit organisation advertised for a new CEO, planning to offer around $90,000, but not stating that in the advertisement. Enquirers were told of the figure to be expected. A number of people lost interest in the role when they received that information. However, a number of applications were received, of which most were clearly unsuitable for this senior leadership, business development role. Of the few who were considered, none really had the specific attributes needed – ‘near enough” was certainly not “good enough”. After wasting some months in an exercise that did not produce a suitable appointee, the organisation decided they needed assistance from a specialist search consultant. The executive search consultant found several excellent candidates for the association to interview and eventually the CEO was appointed on about $110,000.

Executives working in corporates or government departments may miss the point of this article. The quoted association/community salaries will be considerably less than they may be paid, or have expectations of earning as a senior executive. It is worth remembering that many people are not motivated by salary as such, but equally they don’t like to think that the organisation does not respect the skills and knowledge they are willing to transfer to a new organisation.

Leave a Reply