In 2004, two of Washington's marquee trade associations, the Pharmaceutical Research and Manufacturers of America and the Motion Picture Association of America, were locked in a well-publicized bidding war to nab Rep. Billy Tauzin, R-La., as their new chief executive. PhRMA won, and when he took the helm at the drugmaker lobby group the following year, Tauzin netted a signing bonus of about $500,000 on top of a handsome salary. In 2006, Tauzin, who had chaired the powerful Energy and Commerce Committee, received a compensation and benefits package of about $1.6 million.
The MPAA, no slouch in the clout department, went back to the drawing board in its search for a chief, eventually luring former Agriculture Secretary and Rep. Dan Glickman, D-Kan., from his job heading Harvard University's Institute of Politics at the John F. Kennedy School of Government. Glickman's compensation and benefits package at MPAA topped $1.3 million in 2006.
The MPAA-PhRMA clash was an example of the lengths that associations go to in their quest to hire the right leader. Trade groups and other nonprofits are putting a lot of cash on the table -- and promising a stream of future benefits -- to the person they believe will deliver for their industry or profession in the nation's capital.
"These are power brokers that make a difference," says Leslie Hortum, manager of the Washington office of executive search firm Spencer Stuart, which has placed a number of individuals, including Glickman, at top-paying associations. "They are rainmakers. They get their phone calls returned. And organizations are willing to pay."
Glickman and Tauzin were among 68 CEOs, presidents, executive directors, and other leaders of trade associations, professional societies, think tanks, interest groups, and labor unions who took home pay and benefits packages of $1 million or more in 2006, according to National Journal's ninth biennial salary survey. The survey was based on the annual reports, known as Form 990s, that 737 organizations filed with the Internal Revenue Service. Because of filing delays and extensions, the survey reflects salaries paid between two and three years ago.
The major headline is the continuing rise in the number of millionaires from two years ago, when we identified 48, as well as those CEOs making more than $500,000 a year. In 2006, 195 executives broke the half-million-dollar mark, compared with 145 two years previously, and 120 in 2002. From 2004 to 2006, the median increase for Washington CEOs in our surveys was 12 percent -- which included deferred compensation, bonuses, retirement benefits, and personal allowances on top of straight salary.
A combination of factors has been driving the fatter paychecks, among them Washington's significant impact on corporate America's bottom line and the role that trade associations and advocacy groups play in shaping public policy and legislation. An individual who can navigate the political process, gain access to lawmakers, and manage an organization while keeping it in the black is in high demand. Increasingly that person is, like Tauzin and Glickman, a former member of Congress, Cabinet member, or governor, although most association chieftains still come from outside the political world.
And just as the for-profit sector awards generous bonuses to chief executives for meeting performance goals, nonprofit groups are using monetary incentives to keep an effective, motivated leader at the helm. In return for the generous compensation, those executives are expected to deliver.
"It's attributable to member companies [of trade groups] recognizing these are big and demanding jobs," says C. Manly Molpus, the now-retired head of the Grocery Manufacturers Association, who received a total pay package of $4.7 million in 2006 after 16 years at the organization, which has since merged with another group. "Companies want to feel confident that they have an effective advocate in Washington who can speak forcefully and who has the judgment to put together a strategy for offense and defense."
In Washington, thousands of smart, hardworking professionals put in long hours toiling in the three branches of government. But government salaries are dwarfed by the compensation awarded to the best-paid nonprofit executives in our survey. The president of the United States makes $400,000 a year, the Supreme Court's chief justice earns $217,400, and a House member or senator takes home just $169,300 (although they do get generous health and retirement benefits).
"I find the million-dollar number breathtaking, quite frankly," Tracy Mullin, president of the National Retail Federation, says of the numbers from the latest survey. In 2006, Mullin, one of the highest-paid female Washington CEOs, received compensation and benefits of $974,390 from the NRF and an affiliated group, National Retail Federation Enterprises. "To think anyone in any field is worth a million is a big deal."
Headhunters say that the pay scales reflect the thinking in corporate America's boardrooms. Association executives' pay, in fact, pales in comparison with the salaries of those running the nation's largest publicly traded companies. In 2006, the CEO of a company listed on the Standard & Poor's 500 index received a median compensation package that included salary, bonuses, stock options, and other perks of $8.85 million, up 23.5 percent from 2005, according to the Corporate Library, a corporate-governance research firm. Many of these same CEOs sit on the boards of Washington's most influential business and professional trade associations. "They are people that are used to earning very big bucks, and they know there is no way their trade association CEO will get stock options like themselves," says Leonard Pfeiffer, managing director of Leonard Pfeiffer & Company. "So they aren't uncomfortable paying [an association CEO] a serious chunk of money."
Our New Partner in the Salary Survey Process
In 1990, when National Journal published the first survey of Washington association CEO salaries, the top earner among the 329 groups listed took home $673,000. Now, almost two decades later, we report in our ninth biennial survey of 737 organizations that 68 executives were paid more than $1 million in compensation and benefits in 2006, and almost 200 took home at least $500,000.
The task of compiling and analyzing the data -- taken from the Form 990 that groups file with the IRS -- is bigger and more complex than ever. To help us, we found the ideal partner at the independent Washington newsletter CEO Update, which covers news, careers, and people in associations and nonprofits, and tracks the finances of thousands of groups with its online database AssociationIntel.
How do these experts view the rising pay and benefits? "It's no surprise that salaries are shooting through the roof," says Mark Graham, editor of CEO Update. "Time and time again, we're seeing well-connected, talented leaders rack up big legislative wins for their organization. And paychecks -- and tenure -- are proof positive that stakeholders are happy with the results."
The Washington area is also one of the priciest places to operate a business -- average association salaries here are 19 percent higher than in the country as a whole, says Jeannine James, president of American Research, which conducts national salary surveys of associations. Her firm's study of 3,000 groups showed that in 2006, the average annual compensation for executives in associations with revenues of $10 million or more was $501,025; it was $796,550 for associations with revenues of $100 million and above. More than 40 percent of all associations are based in the D.C.-Maryland-Virginia area.
"If we look at [the pay packages] through a Washington, D.C., public policy lens, we might say, 'Wow, that is a huge figure and outsize in comparison to where the rest of the people in Washington are,' " says former Rep. Ken Bentsen Jr., D-Texas, now president of the Equipment Leasing and Finance Association. "But if you look at it through a corporate lens ... CEOs speak for their industries not just in D.C. but across the globe, then maybe you say that isn't out of whack." The association paid Bentsen $255,275 in 2006 for a partial year's employment.
How Would You Feel?
In putting together the current survey (our largest ever), we joined forces with CEO Update, an independent biweekly publication based in Washington that covers the world of associations and nonprofits, and tracks the finances and executive salaries of thousands of national organizations. To be included, a group had to be headquartered in the Washington area, have an office or other presence here, or have a substantial economic or policy interest in the outcome of government actions.
But as in the past, this year's survey of organizations comes with some caveats. First, we looked at 140 more organizations in this survey than we did two years ago. The increase contributed somewhat to boosting the total number of millionaires on our list, but it did not alter the fact that pay has boomed for all groups in recent years.
Second, as was the case in previous years, several individuals on the list of top earners received large final payments when they left their employers. The executive with the top pay this time, Robert Glauber, retired from the National Association of Securities Dealers (since renamed the Financial Industry Regulatory Authority) in 2006 with a total compensation and benefits package of $6.8 million.
Glauber declined to comment for this article, and a FINRA spokeswoman argued that the authority did not belong in our survey because it is not a trade association or interest group. Rather, she described it as a self-regulatory organization formed in 2007 through the consolidation of the NASD and the enforcement functions of the New York Stock Exchange. On its website, FINRA calls itself "the largest nongovernmental regulator for all securities firms doing business in the United States" and says it "oversees over 5,000 brokerage firms, about 171,000 branch offices, and more than 672,000 registered securities representatives."
After considering FINRA's argument, we decided to include the group because FINRA is seeking a lobbyist to help support the mission of "maximizing FINRA's recognition and positive reputation among key federal and state governmental officials and staff ... and advocating FINRA perspective on policy issues that could impact the organization." That's exactly what trade associations and interest groups do in Washington.
Regardless of who is included, most CEOs (and their employers) are not happy at seeing their pay in print: Gary Shapiro, president and CEO of the Consumer Electronics Association, was among those who expressed discomfort with having his pay publicized. "It's the price of being at a nonprofit, isn't it?" he responded when asked his reaction to being among the top 50 earners in compensation and benefits. "Would you be happy if your salary were public?"
Thomas Donohue, the longtime head of the U.S. Chamber of Commerce and a perennial top earner in our survey, said this of his $3.3 million package in 2006: "I have one of the best jobs in America, and it is more challenging every day. I work hard. I hope I've earned it."
Another increasingly important factor in analyzing CEO pay is deferred compensation and money from lucrative retirement plans. For example, Molpus's $4.7 million payout from the GMA included $3.53 million in retirement benefits accrued over his years of service. Among the other millionaires whose departures included exit payments were Ernie Csiszar of the Property Casualty Insurers; W. Henson Moore of the American Forest and Paper Association; Jack Faris of the National Federation of Independent Business; Craig Fuller of the National Association of Chain Drug Stores; and Marsha Evans of the American Red Cross.
Deferred compensation and supplemental executive retirement plans are important tools for nonprofits because, unlike corporations, associations cannot offer stock options and are limited in how much they can contribute to certain pension plans. These plans, which vest over multiple years, are paid out in lump sums and not necessarily at retirement. In 2006, at least six millionaires fit that category. One is William Novelli, the CEO of AARP, who took home $2.04 million in 2006, well above the $779,203, he received in 2004. About $1.2 million of the higher amount was from the vesting of a five-year retirement program. "I don't relish being in the top 50 [of CEO earners]," Novelli said. "I want to make clear that it was a five-year pension supplement payment."
Former Rep. Daniel Mica, D-Fla., who has been running the Credit Union National Association since 1996, received $1.89 million in 2006, which included a payout of $917,850 from a five-year deferred-compensation program. Among the others whose compensation included payments from multiyear vesting programs were Karen Ignagni of America's Health Insurance Plans; Tom Van Coverden of the National Association of Community Health Centers; Roy Williams of the Boy Scouts of America National Council; and David Wilson of the Graduate Management Admission Council.
Another key issue involving deferred-compensation benefits is that associations must report to the IRS how much they have put aside for the executive. However, the executive doesn't get that money until the benefit vests. Overall compensation, as a result, often appears larger on the 990 filing than what the CEO actually took home that year. Shapiro of the Consumer Electronics Association, for example, was surprised when he heard he was among the top 50 earners. He received base compensation of $888,540 in 2006, but his association put an additional $352,140 in a deferred-compensation account, which brought his total package to $1.24 million. "I was surprised it is that high," Shapiro said. "I'm now going to ask our CFO about it."
Further, money in a deferred-compensation account can return to the organization if the CEO leaves before a certain date. The National Chain Drug Stores' Fuller left in April 2006 after six years at the helm but before his deferred-compensation plan vested. As a result, $1.12 million that had been set aside for him was returned to the association.
Even without deferred-compensation payments, CEO salaries have undoubtedly surged. The number of chief executives who were paid at least $1 million, not counting benefits or allowances, grew to 47 from 29 in 2004.
The CEOs with the overall highest compensation packages worked in the communications and information-technology sector, where the median package was $680,102. Coming in next were CEOs in the finance, insurance, and real estate sector, with a median of $550,205. Third was the advertising, entertainment, and printing and publishing sector with a median of $519,028.
Although the CEOs at the top get most of the attention, the bulk of the executives in the groups surveyed made $400,000 or less -- a generous but hardly eye-popping pay package. As in the past, executives in the public-interest sector were paid the least: The median salary among CEOs in that sector was $199,646.
And also as in previous surveys, women lag behind men when it comes to leading trade associations, professional societies, interest groups, think tanks, and labor unions. In 2006, women ran 18 percent of associations surveyed, compared with 16 percent in 2004. The median compensation, including benefits and allowances, for male CEOs was $338,678; for female CEOs, it was $260,064. Nationwide, women headed 31 percent of associations in 2006, according to American Research. Among the Fortune 500, 14 women ran publicly traded companies, according to research by the group Catalyst.
More than $2.6 billion was spent lobbying Congress and federal agencies in 2006, and trade associations and interest groups are a key part of the Washington influence game. Association boards now view their organizations as "an integral part of their business plans," says Steve Anderson, president and CEO of the National Association of Chain Drug Stores.
Further, the competition for lawmakers' attention has exploded. Hundreds of groups traipse up to Capitol Hill for meetings with members, millions of e-mails flood staff computers, and fundraising sucks up more and more of a legislator's time. Individuals with perceived connections, therefore, can command significant pay, as PhRMA discovered in 2004 when it hired Tauzin.
"There are so many competing voices that associations started to recruit those with great name recognition within political circles," says Doug Pinkham, president of the Public Affairs Council.
Before Democrats won control of Congress at the end of 2006, most of the CEOs being hired were Republicans. Several of the millionaires in this year's survey were GOP elected officials or party operatives when they were recruited to become CEOs. Besides Tauzin, former Michigan Gov. John Engler ($1.2 million in pay and benefits in 2006) was hired by the National Association of Manufacturers; Jack Gerard ($2.2 million), a fundraiser for President Bush, was hired away from the National Mining Association to run the American Chemistry Council; former Bush Energy Department aide Kyle McSlarrow ($1.8 million) was hired by the National Cable & Telecommunications Association; former Montana Gov. Marc Racicot ($1.8 million), who also was Republican National Committee chairman, was hired by the American Insurance Association.
Once an association has hired a leader, the board wants to do everything to keep that person because "a search is really painful for an organization," says Lorraine Lavet, a headhunter for the search firm Korn/Ferry International. Deferred-compensation programs are one way to do that; generous bonuses are another. Those bonuses aren't automatic but are tied to meeting performance goals. This year, headhunters and compensation specialists said that bonuses have reached a new level and are now in the range of 30 to 50 percent of a CEO's compensation package. A decade ago, bonuses were 10 to 15 percent of salary.
"There has been a significant shift in providing at-risk compensation," says Jim Moss, founder of PRM Consulting, an executive search firm. "So the opportunities for more pay are higher."
As a rule, bonuses are linked to four criteria, Moss says: success in managing a budget and finances; achievement of legislative goals; the ability to communicate with staff, the board, and the public; and the ability to recruit and retain talented employees.
In the case of the National Retail Federation, it is President Mullin's management skills that are important to the 60-member board. "Advocacy is critical for us, but our board knows that when something positive passes everyone takes credit for it, and we don't control the agenda in Congress," says Mullin, adding that her staff provides the bulk of Hill lobbying. "So it's more about, do people see us as effective?"
The same is true at the Personal Care Products Council, where president and CEO Pamela Bailey holds both a management position and a "complex, multifaceted communications job." She says she is spending more and more time working on behalf of her members to get information to consumers. "It used to be a strategy to support public policy; now we are taking on initiatives beyond that," Bailey says, such as creating an online site for consumers to learn about ingredients in cosmetics.
For other groups, it is the lobbying ability of the CEO that is critical. Business Roundtable President John Castellani is one of the corporate community's most able lobbyists, and in 2006, all of the group's "major" legislation passed Congress. Other factors, including meeting organizational goals, played a role in his $2.95 million compensation package, but it was Castellani's success on the Hill that was key. He is particularly motivated to meet his members' goals because he works without a contract, and the roundtable's board could fire him tomorrow if he wasn't performing. "I'm either the smartest or the dumbest guy in town," Castellani says.
At another organization, the ability to raise money may be the key factor in compensation. The U.S. Chamber of Commerce's Donohue is a legendary fundraiser: The chamber's revenue grew from about $50 million when he took over in 1997 to about $125 million in 2006. More than half of Donohue's compensation was tied to a bonus. "The board thinks he did a really good job and wanted to reflect that in compensation," chamber COO David Chavern says.
Meeting goals is no walk in the park. The demands on association executives are formidable, as they are responsible for developing a strategy that not only promotes their industry to the public at large but also keeps it relevant in Washington. They must be adept at working with the personalities of competing executives, and they have to keep their own staff motivated. Other requirements are a head for business and the ability to excel at public relations when their industry is hit with an economic or a political crisis.
Jerry Howard, the executive vice president and CEO of the National Association of Home Builders, describes it as a "24/7 job because of the technological capabilities we have today. I respond to e-mails on July 4 and Christmas Day." Now he is dealing with a severe housing slump in addition to managing the day-to-day operations of the organization.
Another challenge for association leaders is dealing with industry mergers and executive turnover. Each time one of his member companies would gobble up another, or an executive changed positions, Grocery Manufacturers chief Molpus would personally visit the member's office to keep relationships with company executives fresh.
"Company CEOs change at a quicker pace than previously," says Molpus, who is now happily retired and living in Sarasota, Fla. "You couldn't take a relationship for granted because there was constant churning and new executives taking over. I was always hopping on a plane."
On many boards, the members change every three years and that means a CEO's bosses are constantly in flux. Craig Fuller, the chain drugstore association's previous CEO, knows the challenge only too well. After six years of heading the group, Fuller says, few of the members who recruited him in 1999 remained on the board. He found that he and the chairman of the association "had very different ideas about" future strategy. "I had a contract that said if the chairman wants to go off in a direction that isn't consistent with what I think is best, there was an opportunity to step away. So I decided to step away."
Looking ahead to our next survey, two years hence, the shift in congressional power to Democrats is likely to have an impact. Although no headhunters expect associations to fire their Republican-leaning executives in favor of Democrats, more Democrats could be on the hiring list the next time.
Several headhunters said they think that many associations are waiting until after the presidential election to make decisions about leadership. For now, though, Republicans are still getting high-profile jobs. In January, former Rep. Richard Baker, R-La., was hired to run the Managed Funds Association, while T. Timothy Ryan Jr. was tapped to run the Securities Industry and Financial Markets Association. Ryan was director of the Office of Thrift Supervision under President George H.W. Bush.
"This was a business decision," says Wendy Pangburn, a partner at Heidrick & Struggles, who conducted the search for the Managed Funds Association's new leader. "Truly, politics wasn't a factor. In the case of Richard Baker, no one knows more about the markets, and he has a wonderful working relationship" with House Financial Services Committee Chairman Barney Frank.
CEOs could face tougher sledding when it comes to achieving the legislative goals that lead to a bonus. When Republicans were in charge, the business community got much of its agenda passed, from broad tax cuts to free-trade agreements to increased limits on lawsuits. That may not happen under the Democrats.
"It will be tougher in terms of achieving our legislative objectives," Castellani says. "We will have to be more creative."
And the slowing economy may make trade groups wary of rewarding executives so richly. Eric Vautour, a co-leader of Russell Reynolds Associates' U.S. operations, says he thinks that "the market has reached equilibrium" and that some associations have hit the ceiling on what they are willing to pay. Compensation specialist Charles Quatt, president and founder of Quatt Associates, says he is increasingly hearing that boards are worried about a recession and possibly having to tighten their belts.
"But I don't see pay going down," Quatt says. "Washington has almost no unemployment, and it's a separate economy. Most boards find there is a D.C. rate, and they have to pay it." Adds Pangburn: "If anything, I see an acceleration in salary demands. Remember, it's what the market will bear.... Good people cost money."
Ultimately when it comes to CEO pay, says Shapiro of the Consumer Electronics Association, "you are worth it until you are not."