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CEO Update LIVE: Pay stable in 2020, next year uncertain

Experts say executive search and compensation activity has exceeded expectations, but greater impact may be felt in 2021 budgets

Nov. 18, 2020
By William Ehart

Even as the budgets and business models of so many associations have fallen victim to COVID-19, board members are still willing to pay up for strong leadership.

“People are looking for talent,” compensation expert Charlie Quatt during the CEO Update LIVE: Compensation webcast on Nov. 17. “And when they find it, they’re making good offers.”

Executive search consultant Leslie Hortum of Spencer Stuart agreed.

“I have not had one client say, ‘Hey, do you think we can get a better deal on this candidate because of the pandemic?’” she said. “In fact, it’s been the opposite. ‘What is it going to take to get this person to make a move in the midst of the pandemic?’ has been more of the conversation.”

In response to questions from moderator Mark Graham, managing director of CEO Update, Hortum and Quatt said executive search activity and compensation trends have stabilized since the initial pandemic shock last spring.

Quatt’s business consulting firm, Quatt Associates, has done several real-time compensation surveys since the pandemic began, most recently in October. The latest results showed a more positive picture for executive compensation than he expected. But as usual, and particularly when it comes to incentive pay, trade association CEOs are faring better than those of professional societies.

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By the numbers

Just 2% of trade associations responding to the Quatt survey reported cutting CEO base pay, he said, while 41% percent have frozen base pay and 56% reported increasing it. Among individual membership organizations, 5% were reducing chief executive base pay, 48% freezing it and 48% increasing it. (The numbers don’t add up to 100% because of rounding.)

“What we’re seeing is a much more positive outlook in terms of either base salary retention or increases than we had anticipated,” he said.

Some trade association CEOs are seeing even higher incentive compensation.

Among trades, 11% reported their CEOs would receive no bonuses and 26% reduced bonuses. But 56% of trade group CEOs were receiving normal incentive pay and 8% actually would get higher bonus pay.

“There are many reasons” why some are seeing higher bonuses, Quatt said. “It’s how they responded to COVID. It’s the value that members see in them.”

Among professional societies, one third reported eliminating bonuses, 28% reported reducing them, and 35% said they would continue at normal levels.

With the pandemic creating an epidemic of uncertainty, some organizations are shifting to quarterly reviews of executive performance and recalibration of bonus metrics, he said.

“There’s a real value in looking every quarter at the performance goals and make sure that they still make sense, particularly if the organization is being diverted from carrying out some things because of other things they have to do,” Quatt said.

Hortum said the pandemic has been an opportunity for executives to show their mettle.

“There are some (CEOs) who’ve just hunkered down and said, ‘Let me know when it’s over,’” she said. “And others who’ve said, ‘Gosh, what an opportunity for leadership.’ And they have stepped in and very proactively tried to manage their teams and their boards through this unprecedented time.

“So, what our clients are now asking us for is, ‘Is there a candidate who can demonstrate his or her track record of impacting change or leading through change? Because that’s what we need right now,’” Hortum said.

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Equity and inclusion

The increased awareness this year of racial equity issues this year has had a major impact on executive recruiting, Hortum said. 

“One other thing that has fundamentally changed or been enhanced and accelerated throughout all of this is the whole question of diversity, equity and inclusion,” she said. DE&I has gone from being an important goal to one of hiring organizations’ most important priorities, she said.

Spencer Stuart has long recognized the importance of diverse candidates, she said. But after discussions with one current client, the firm agreed to a different approach for its initial written presentation of candidates to the client.

“We’re going to send the materials blinded, so that there are no photographs and no names,” she said. “People will just be looking at the actual career experience of the candidates.”

After the search committee chooses a group of candidates to consider, Spencer Stuart will review the list to ensure adequate representation of women and minorities, she said.

Tough year ahead

Despite the stabilization of compensation this year, next year could be a different story, Quatt said. Many CEOs benefited from the fact that base and bonus pay for 2020 was budgeted before the pandemic hit. Boards may be more cautious going into the second year of the pandemic’s continuing impacts on industries and on in-person meetings.

“Budget issues may be more severe in 2021 than they are in 2020,” Quatt said. Boards “are worried more about revenues next year, they’re worried more about losing members.”

But employers are searching for ways to reward staff that go beyond pay, he said, pointing to a Nov. 14 article in The Washington Post.

“A lot of people have come around to thinking that they can do some things in compensation,” he said. “There was a very interesting article on how the pandemic is shifting workplace benefits—prepaid legal plans, IT help desks for kids (attending school remotely), expanding hospital coverage, mental health benefits, even help with divorces, access to telehealth platforms ... giving employees time to be with their kids … and I thought, ‘Isn’t this wonderful?’”

“In some cases, (employers are) making arrangements to give employees access to these benefits at no cost to the company, but with a lower rate for the employee,” Quatt said.