Over the past year, there has been a sea of change in the compensation practices for heads of schools/directors worldwide.
Recently, a Recruiter whose client is a for-profit school contacted me to inquire about a head of school candidate. She asked my opinion about whether her suggested package would entice that individual or one of a similar caliber. That number is $750,000USD. There are now many heads, leading both independent and privately owned “for profit” schools, earning 750,000USD or more both in the US and overseas. For example, in New York City alone there are several at that level of compensation or higher if one takes into consideration the value of housing, the cost of living and the competitiveness of that market.
In order to provide immediate credibility to their product, privately owned schools, including investor owned startups and “chains”, are picking off top talent, i.e. very reputable school heads from well-known US independent and international schools, One new School in New York City recruited the retired heads of three internationally famous US independent schools to add to its “stable” of at least five former school heads in its top leadership group. Very quickly, that School attained status and cache.
On the international scene, a surprising number of heads are seeking and receiving a similar package mostly from new, for profit ventures and large chains, privately owned schools and from some not-for-profit schools as well. Why? The “newcomers” are trying to catch up and play the game with the best, most established independent and international schools in the world.
When the Recruiter called me recently, she asked whether some top candidates whom her client might like to approach would be inclined to work for a for profit school or chain of schools. I said “yes” because the ground has shifted dramatically. Heads are now much more open to considering nontraditional school business models. Working for such organizations has some inherent risks, but many are willing to take them for the upside potential in the earning power, funding and educational innovation that they offer.
I. The New Trends
Since 1983, over 4,000 school boards, many of them multiple times, have hired this Consultant to benchmark the compensation for their heads. Littleford & Associates works only for boards, but our Firm frequently comes to the attention of boards largely through the head network.
Our strongest demand for this service still comes from the boards of independent and international schools. On the other hand, for profit chains and privately owned schools are now requesting our counsel about how to structure a fair and very competitive head, senior management and/or faculty compensation package to attract and retain the best administrators and teachers available. Recently our Firm helped the owners of a for profit chain design a salary delivery system that would enable them to recruit reputable school administrators and high quality faculty from the finest schools. It appears to be working.
II. Growing Challenges Facing Boards of Nonprofits
These boards are dealing with public perception, and in some cases in the US, public knowledge of what the head of a nonprofit is being paid. Even though IRS Form 990 data is usually two years out of date, it provides just enough information to create a stir among those outsiders with little or no background knowledge about what it takes to attract and keep a valued head of school/director.
This is a major challenge for the nonprofit boards that are trying to keep pace and pay competitively for the best leaders in the world. First and foremost, in the United States, the total compensation of the five most highly paid individuals in the school or organization must stay under the radar screen of the IRS and ultimately pass “safe harbors” muster. The school or organization must have documentation on file to substantiate this.
Second, the gut instinct of most board members is not to offer the head/director a package that seems to be too high overall and certainly one not higher than what they are earning themselves. This Consultant has consistently observed this often subconscious behavior over many years of facilitating head contracts even though the vast majority of board members want to be very fair in their deliberations and reward and retain their head of school.
The highest paid heads in the world are those whose compensation committees are made up of venture capitalists, investment bankers and CEO types. They are the group who are often the decision makers on for profit school boards, and one will find them in the greatest numbers on the boards of independent and international schools in the major metropolitan areas worldwide.
Senior managers and CEO�s of multinational companies serve on the boards of international nonprofit boards. They understand how to attract and retain talent, but because they often leave these boards after two years to relocate, their institutional memory about compensation unfortunately is lost.
The heads who are paid less tend to be those with little visibility outside of their immediate area, with apprehension about negotiating and those whose compensation committees are dominated by professionals. That is simply because such individuals are more accustomed to being paid in billable hours or according to another similar method.
A few years ago, a Board Chair called our Firm because his long-term Head was seriously contemplating a move even though he was very dedicated to the mission of his current School. The Members of his Board were mostly missionaries. The head earned a “missionary” salary so it was no wonder that he felt a need to entertain other offers. Our Firm worked with that Board to develop a reasonable package that the School could afford and that allowed the Head to remain and feel less financial stress. It is important for all boards never to assume that a head, no matter how loyal, cannot be recruited away.
To remain in the game, the not-for-profit sector of schools will have to engage in a thoughtful and creative process of benchmarking both current and likely future compensation patterns in order to recruit and retain the best leadership and teachers and in order to compete with a very successful and growing group of for profits.
Investors worldwide are now seeing schools and education as a money making opportunity. One private family owned School where this Consultant worked recently hosted individuals from a prominent international investment group with a potential interest in buying a stake. Such investors want top notch CEO�s who can attract both clients (parents and students) and talent (staff). As part of their buying spree firms will consider paying the top leadership almost whatever it takes to land them. Packages approaching $1,000,000 are now popping up in multiple places.