Managing Head Compensation

Transparency vs. Confidentiality

*Managing Head Compensation

Confidential: Intellectual Property of Littleford & Associates

*Key Themes

*Head Compensation: Myths and Reality*Competitive Compensation and Market Replacement

Costs*Evaluation Requirements*Transparency

*How is Head Compensation

Determined?

*Head compensation is most influenced by the occupations of the Compensation Committee members. Surprising? *The highest paid heads tend to have

board chairs who are CEOs, COOs, venture capitalists or investors. Why?*The lowest paid heads have compensation

committee members who are “professionals”

*The Role of Region

*Far East, Middle East, Europe, Latin America and Africa, generally in that order of pay*Strong currency nations have more

leverage, i.e., yen, Euro, pound

*Who Gets Paid the Most and Why?

*The highest paid heads are males who move about every 4-7 years. Why?*Also highly paid are the senior respected leaders who

have been recruited by new for profit, privately owned or investor created schools

*Who Gets Paid the Least and

Why?

*Women: paid up to one quarter less*Heads who are hired from within*Heads who stay at their first school *Heads who have been at the same school more than 5

years*Heads who are self-effacing

*The Head’s Contract

*Most are three year*Most have an “evergreen” clause*More than 90% of school heads have

written contracts and the remaining 10% SHOULD

*Termination Issues

*Termination not for cause should provide the head 12 to 18 months notice or pay*Termination for “cause” should include only very serious matters such as “gross misconduct” or “moral turpitude” NOT “insubordination”*Termination by the head is usually 6 to 8 months notice but in good schools, should be 12

*Types of Compensation

*Annual Base Salary*Cash Bonus *Deferred Compensation funded by School

*The Benefits Package: Contributions to Standard

Benefits

*The amount that the school ACTUALLY pays on behalf of the head over and above what is provide to other employees

*Disability Insurance: Often individual* Life Insurance: Usually two times salary*Medical Insurance: Usually Family*Dental Insurance: Family*Flexible Benefits

*Other Compensation

* Forgone Interest on Loans or Forgiven Loan Principle

* Education Assistance Plan* Tuition Benefit (beyond standard remission

and including other kinds of tuition or other school-related benefits) Include the “gross up” (if any) to cover the head’s tax liability on this benefit.

* Tuition at another school* Additional Insurance* Spouse Travel Allowance or Payments* On and Off Campus Housing* Home leave: Business class flights?

*Other Compensation II

*Auto Allowance or Driver*Club Membership or Dues*Sabbatical Opportunities, vacation and/or

personal days (cashed out instead of taken)*Any other reportable income*Calculated in gross or net terms?

*Housing

*Many schools provide housing*Most others provide a housing allowance

(or it is included in base pay calculation)*Some provide an interest free down

payment forgiven over time to assist in the purchase of a permanent retirement home (for long termers mainly in Europe, US)*It is difficult to recruit a head without

housing support no matter what the market

*Replacement Cost

*Moving expenses*Housing: Tax Issues*Retirement/Gratuity insurance*Life, health, disability insurance: Tax issues*Tuition remission: Tax issues*Deferred compensation: Tax Issues*Club membership: Tax Issues*Travel for family*Bonus

* Head Evaluation

*Evaluation must be annual and in writing*Evaluation is a goal setting process of not more than FIVE manageable goals*Good evaluation does not involve parent or faculty interviews*Evaluation involves the entire Board*The higher the pay, the more important the need for an evaluation “paper trail”*Avoid corporate “360” models: Why?

* Head Evaluation: What About

On-line Tools?

*Far better than no evaluation at all*Be wary of “over kill”: too long, too many questions*Be wary of potential inadvertent circulation

*The Politics and Feelings Involved

*Contract renewal is like a marriage renewal, a reaffirmation of the parties*Overlooking the head’s contract is

unprofessional and risky*Setting the head’s compensation last is

not smart*Do not take the head for granted as head

hunters will call.

*The Compensation

Committee

*Should be 3-5 members*Chair, Vice Chair and Finance Chair or immediate past chair*Meets annually*Speaks for the board

*The Compensation Decision:

How Transparent?

*Everyone board member has a legal right to know BUT*Report no details to the full board*If a board member demands disclosure ask him or her to call the board chair for a private conversation

*The Process as well as the

Product

*Taking the time to talk and review the compensation needs and package annually is crucial*The head often thinks about the contracts of his staff but is reluctant to speak up about his or her own*Respect the head’s spouse and his or her needs*Respect the needs of the head’s children and family

*Conclusion: Why Conduct a Head Compensation

Review

*To be fair, competitive and know your market replacement costs*To introduce discipline, professionalism and some measure of transparency into the compensation setting process for the head of school

*Why Hire Littleford & Associates

*Benchmark the compensation package of the head and senior administrators with one of the most accurate data bases built over the past 22 years*Can be retained by boards only, not heads*Thorough and efficient process that

affirms all parties*We have done this for over 4,000 schools

in the past 25 years and for many schools multiple times for the same heads and for retiring and new heads

John C. Littleford1-800-69-TEACH

[email protected]

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