Incoming association CEOs are likely to earn less than their predecessor, according to new research from ASAE's Executive Compensation Study (ECS) team. 

The team analyzed the compensation history from 565 national associations with revenue greater than $1 million. The data examined was limited to full-year salaries of incoming CEOs compared to the last full-year salary of the former CEO. Comparison figures are actual salary figures paid and not adjusted for inflation.

Close to a coin toss, 55 percent of new CEOs hired between 2021 and 2019 had lower base pay than their predecessor. 

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Changes in Pay

Most changes in compensation from outgoing to the incoming CEO were +/- 10 percent, but double-digit declines were not uncommon as some organizations sought to level-set salary of the new CEO. 

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The discovery that new chief executives often earn less than their predecessors is punctuated by the fact that many comparisons have a two-year gap, because it's common for leaders to begin and end their tenure midyear, forcing comparisons out by another year.

While many associations are modernizing executive compensation plans and moving to reward executives with more at-risk pay, the gap between the new and former CEO increases when factoring bonus pay in the first year. In this case, 61 percent of new CEOs’ base salary plus bonus pay was less than the former CEO.

Even when comparing the second year pay of new CEOs, when bonus pay is much more likely, the gap narrows only slightly—57 percent of combined base and bonus pay for new chief executives is still less than the former CEO. When accounting for just base pay in the second year, 52 percent have lower compensation.

Researchers analyzed three years of data to rule out any pandemic effects on compensation and found that base-pay declines were similar in all three years for incoming CEOs.

However, incoming CEOs can usually expect a significant bump from their previous position. Executive recruiters estimate that candidates typically see a 10 to 33 percent increase in compensation compared to their previous position.

What Influences Pay Changes

Size of the organization may have some influence on how the new CEO’s paycheck stacks up to the former CEO. 

Among organizations that increased the new CEO pay by more than 10 percent, the median revenue was $2.4 million, whereas the median revenue among all groups in the data set is $5.6 million.

A related statistic gives the appearance that organizations are level-setting compensation that may have been below market. Forty percent of organizations that were paying the former CEO less than $150,000 increased the salary of the new CEO by more than 10 percent.  

Conversely, when the last full-year base pay was higher than $300,000, 62 percent of incoming CEOs earned less. That figure holds relatively steady for base pay above $400,000 and $500,000, but the data set is considerably smaller the higher the salary.

There was virtually no difference between the pay-change trends of professional societies and trade associations. In addition, while the Washington, DC, metropolitan area is only geographic region with enough data points for reliable data, incoming CEO pay was within the boundaries of the entire dataset: 58 percent of new Washington, DC-based CEOs were paid less than the person they were replacing.

Other Contributing Factors

There are many organization- and candidate-specific reasons that play a factor in setting compensation for incoming CEOs, but the data is clear that an increase is not automatic for them.

For instance, the background of the incoming CEO is a consideration. First-time CEOs, who have less experience running an organization, are often paid less than veteran CEOs. 

That's because a first-time CEO may be viewed as more of a leadership risk for the association and need more support. Meanwhile, a veteran CEO is more likely to have more practical knowledge running an entire organization and reporting to a board, which is a critical skill in longevity.  That type of candidate is more likely to "hit the ground running," which is a profile that is valued in the marketplace and can command a higher wage.

Paychecks of long-time CEOs—who are ostensibly well-liked given their long tenure—often grow faster than the organization that they lead, and organizations often seek to reset compensation with an incoming CEO. 

But tenure cuts both ways: An organization replacing a long-term CEO or a founding CEO can discover they were underpaying the CEO, and the recruiting marketplace will demand the organization increase compensation to hire a new leader.