While the country bemoans the large exit packages negotiated for the CEO’s of failed, failing or defunct banks and corporations, the challenge to recruit, retain and reward appropriately the talented leaders of non profits and independent schools continues.
In this year, our firm is seeing more turnover of heads in international schools. The pool of talented independent and international school heads appears to be at a relative low point for the last 10 to 15 years. That may be because so many heads are retiring, have retired or have announced their intent to retire. It may also be that some of those coming up the ranks of aspiring school heads lack the experience or skills to deal with the combined financial forces now shaking the world and thus potentially the tuition and endowment based foundations of international and independent schools.
Most school heads were once teachers and after that division heads or principals. Most were not financial managers, marketing gurus or admissions experts. Most expected that there would always be a steady stream of admission applicants, a willingness of corporations to pay or donors to contribute, or plenty of municipal bonds financing that could eventually be paid off with donations or well designed income streams. However, many of these assumptions are no longer valid in today’s environment. In fact, making these assumptions right now can be very risky. The debt loads of many schools are now in the downright dangerous zone.
Where will schools find the intellectual visionaries who are also the financial managers and the academic leaders of a school’s faculty? They will compete for them. And many schools will try to “poach” these talented heads from each other. From our observations of the searches going on world wide (including those we do ourselves), it is apparent that the schools with the deepest pools of potential talent are either those in very attractive locations or those with very attractive creatively designed packages or both. If “both”, the school is most fortunate.
A recent client landed its new experienced and highly regarded international school head very quickly by simply calling the individual and suggesting he consider the change. Since this client school is in an outstanding location and the pay package is among the best, the candidate said “yes.” It is not that his current school is not a good one. It is an outstanding one. It is not that his current pay package is poor. It is highly competitive. The school in the search knew exactly the kind of head it wanted and vetted the potential candidate who fit its profile.
Keeping your Head: The Real and Hidden Costs of Search and Transition
Money will never or seldom be the key determining factor for great or potentially great school heads. Most heads are former teachers and hence, caretakers. On the other hand, complacency, i.e., assuming that your head is happy professionally and personally, the lack of money or an unprofessional approach to the annual contract renewal process may be the impetus that will prompt him or her to take a look when a head hunter calls.
It may seem counter intuitive in these economic times to pay either your current or your future head a bit more, yet the real all-in cost of an external search including the consultant’s fee, travel and entertainment costs, moving costs for the head and his or her family can approach at least $75,000. Other intangible costs are the time and energy that a search requires on the part of the search committee and the full board even though the prospect of the “hunt” initially may seem to be an exciting challenge.
Once your new head is on board, another significant investment in time, attention and support is required to ensure that he or she navigates the difficult three to five year transition period successfully. Otherwise the cycle is very likely to begin again. Changes that might have proceeded relatively smoothly under a prior head who had a reservoir of political capital may need to be put on hold temporarily or at least embarked upon very judiciously.
Thinking Outside of the Box
Littleford & Associates has helped over 3000 schools across the world, many multiple times, benchmark the compensation for their current, renewing, recently hired or retiring school heads. During this facilitation process where the head is given a formal opportunity to articulate his or her professional and personal goals, the members of the board compensation committee are often surprised to learn that earning straight “cash” is usually not the head’s primary goal.
Pay packages that provide clear elements of reward for performance are now common whether it be through a bonus component tied to clearly set goals or a bonus through deferred compensation strategies that also permit the accumulation of a retirement asset if certain other conditions are met. (Because of change in law in the US, surrounding 457 (f) non qualified deferred compensation plans prompted by a piece of legislation known as 409 (A ) (passed in 2004), such plans are now more appealing to young and mid career heads than more senior heads.)
Heads may also express, for example, a desire for tuition assistance for children, improvements to the school-owned home or an increased housing or entertainment allowance, additional health or life insurance coverage, a sabbatical or other form of professional development. Some of these may not represent a significant financial outlay for the school, but they may go a long way towards keeping a valued head and sending him or her a clear signal of affirmation. That affirmation often ensures the stability of the headship, always the preferred situation where a good head is in place in challenging enrollment and fundraising times.
There is one important thought to keep in mind when making an offer to a new head candidate: it may be very difficult for the search committee to ascertain what the candidate really expects, or wants because the delicate search dance at times masks the candidate’s real needs or family worries. Search firms typically leave these final details up to the parties to negotiate among themselves. Unfortunately, this is where substantial risk enters the picture, both in terms of disappointing a candidate (who may still accept the offer but with diminished enthusiasm) or raising last minute concerns or doubts in the minds of the search committee as the candidate raises honest but unexpected questions.
Contract design may also play a role in both attracting and retaining school heads. The language of contracts and the termination provisions need to be carefully structured to be fair to both school and head. The contract should spell out a clear timeline for the annual evaluation of the head, and the board should follow it religiously without a reminder from the head. Otherwise the annual evaluation process is unnecessarily stressful, and both the head and the board can feel trapped in an arrangement that does not serve either well, were a separation to occur.
Oversight and Due Diligence
In the US, there is an even more important reason for oversight over a new or existing head’s compensation package: the formal benchmarking annually of a head’s compensation package compared to a similar marketplace is a wise business practice and a necessary due diligence legal one mandated by the Intermediate Sanctions Act and the IRS. (For more detailed information on this topic please go to www. JLittleford.com)
Thus, boards must establish a much more formal and deliberate compensation process for setting the total compensation of the head of school. A Head Support and Evaluation Committee should be firmly in place as opposed to assigning this to the Executive Committee as simply another task. An ideal number is four including the Board Chair and Finance Chair.
The Head Support and Evaluation Committee either must gather its own data or hire an independent compensation consultant in order to benchmark the head’s total package AND the components of the package relative to 10-20 peer schools locally, regionally and nationally. It is important to note that any one component of a compensation package that appears to be or is “excessive” can attract the unwelcome attention of either the IRS or the local constituents who have access to Form 990 data on the Internet.
Littleford & Associates can be retained only by boards not heads. For sitting heads, our Firm benchmarks compensation packages and facilitates compensation agreements between the board and the head in a very efficient professional process that is usually successfully concluded within four hours.
For new heads, usually within 48 hours of the candidate having been named, our Firm benchmarks and facilitates the agreement between school and the chosen party. We have done this for hundreds of schools worldwide.
Following this process that can occur either on site or via teleconference, we provide both a safe harbors letter and the Rebuttable Presumption of Reasonableness to satisfy IRS requirements.
Seeking, finding and “landing” talented school heads today and keeping the head and board “safe” requires careful attention to the key components noted above.