For this article and more in the May 2008 HOA NewsLine in PDF format click here.

Weekly, if not daily, I am asked this question from a Board member: "What should we be paying our on site manager?" I am usually asked this question for two basic reasons: The Board is looking to either replace or retain their manager, and they have no idea how to go about placing a value on the position they have available.

It seems a simple enough question, right? Uh, not right. In fact the answer - or rather, processing the answer - becomes very complicated very quickly because each association, has, over the years, developed a "metric" on which they base their expectations for the remuneration of their current manager and more importantly, their expectations on what to remunerate a new manager. That measure, what I call the Association Metric, is often at odds with what the true value is for executive service. That value is determined by the Executive Replacement Metric.

Somewhere between these metrics, a compensation package for a new general manager is usually to be found. And usually, the current compensation package is below market value. Does this mean the association needs to immediately raise its current GM's salary to my metric? Well, maybe, maybe not. But it does mean that associations should base their metric for remuneration on real world replacement value, not on their own narrow scope or subjective experiences. Here are my definitions:

The Executive Replacement Metric is reflective of the current state of the community management industry regionally and nationally, based upon what is available and for what price. It refers to replacing a current on site manager with a professional community association manager, capable of stepping in and administrating the community immediately in a cogent, professional manner; a manager who is educated in our industry, with industry designations and who is knowledgeable about all facets of community association management. This metric also includes a value that will retain the qualified professional over a period of time.

The Association's Metric is almost solely based on the Association's current and past experiences with on site managers; it is colloquial and subjective and usually is based on: a) What we now remunerate our manager; b) What type of manager we currently have (whether we know it or not); c) Other factors that affect the thought processes of the Board and; d) anecdotal information.

This "colloquial and subjective" metric developed by the Board can usually be traced to some very common, though false, assumptions which lead or lull the Board in to believing they can replace their current executive manager for the same or less salary. Not surprisingly, these Board members go in to shock when I give them the appropriate replacement pay range. This value difference leads them to a collision of worlds.

When Worlds Collide

For a quick example of the Executive Replacement metric reference, review this hypothetical association:

• Number of units: 465
• Types : Condominiums
• Annual budget: $850,000
• Number of employees?: 6
• Amenities: All common area buildings (14), swimming pools (4), recreation room, landscape areas, etc.
• Current general complications (lawsuits, reconstruction, etc.) Defect litigation, year 2.
• Professional on-site manager with at least 5 years experience: Yes.

Answer: $70k - 90k, (location dependent) + moving fees

That answer is often met with a stunned silence. "But we are paying our current manager $52k." Yes, I am sure you are. And here's where we will analyze how the association got to their current metric, causing the gap between it and the Executive Replacement Metric.

Metric Gap # 1: The Subsidized Association

The long-term GM: Many Boards are lulled in to blissful ignorance by having a long-term manager who has worked for below-market value for many years. Often these managers choose to stay in one place for security or convenience; sometimes they are simply unaware of their value on the market. Regardless, this is reality and has obviously worked for both parties for one reason or another. This GM is subsidizing the Association by working for less than market value.

Retired guy (gal) with a nice pension. My recommendation to managers is to always work for the market rate, but many is the time an association is lucky enough to hire a site manager who chooses to work for less because they have a great pension and "don't need the money" (And what is up with that?). Again, the Association is being subsidized by their GM.

Current individual has lower than industry standard skills and/or qualifications for the position. Quite common and for many reasons, Boards hire or inherit a GM with less than appropriate qualifications or abilities to perform the complexities of the job and that manager is compensated thusly. As time goes by, it becomes evident to the Board their current manager is unable to handle all aspects of the job and so the Board steps in to perform some, or many, of the tasks that rightly should fall to that manager. In this instance, the Board is subsidizing the cost of management to the association by undertaking tasks for which they should be paying their manager.

Each of these elements increases the gap between the metrics because the Board is unaware of the hidden subsidies - a form of non-profit corporate welfare, if you will - that either they or their current manager is providing. Until, of course, it comes time to replace that manager. Then worlds collide.

Metric Gap # 2: The Executive Manager v. The Executive Secretary

Many associations are in a deep state of confusion (or denial) when it comes to what they currently have in terms of management and what they think they have. It follows that they are also confused as to what each of these should currently be remunerated, and how to quantify what to remunerate the next manager. Here are the two basic types of on site manager: [1]

An Executive Manager refers to a professional community association manager, one qualified and experienced to not only carry out the policies of the Board, but is competent to guide the Board in formulating those polices. This person is well-versed in all aspects of community management and is generally respected by the Board and views him/her as a relative expert in the field. This person usually has industry designations beyond the basics and is often involved on a local, regional or national basis with other managers. This person will be paid on upper end of the scale for the position held.

An Administrative Assistant [2]refers to an administrator who is far more function-oriented; i.e., the Board makes decisions on all major issues and almost all minor ones, and this administrator works to ensure those decisions are executed. This person may have at least basic designations and limited industry involvement and will almost always be paid on the lower end of the scale for the position held.

Please note that I always recommend a professional executive manager for any on site position. Why? Because in my experience the Association will receive better administration over a longer period of time, resulting in a higher level of customer satisfaction, efficient and effective policy implementation, contract supervision, employee and volunteer management. All of this and more: a professional executive manager results in more satisfied clients and - dare I say - higher property values. However, reality is that the administrative assistant form of management can work, albeit to a lesser degree. In addition, if the Board wants to be, and is, heavily involved in day-to-day management, they don't need, and certainly will not want a top-notch professional community association manager because; a) they won't want to pay the going rate and; b) the Board and an Executive Manager will be at continual odds on who knows what to do better, an absolute no-win for the manager who will be viewed as an obstructionist.

Metric Gap(s) # 3 - Other common factors

Board unaware of current salaries (and why they are what they are). Unfortunately, when it comes to salary packages, Boards are woefully unaware of current compensation packages in our industry. Also, if the Board members are largely retired they often compare what the average professional manager makes in mid-life with what they made at that same time in their lives, potentially many years ago. The truth is executive manager salaries have increased due to increased demand because of the overall multi-family housing boom of the past 10 years, the slow recruitment and training of new managers, and the managers themselves becoming more aware of their worth. Add to that the following: The inability of many managers to easily move from one location to another because they either can't sell their current home to accept a position outside of commuting distance, or, if they can, they can't get a loan to buy a new one. Not to mention the aging population of our most skilled site managers and their own retirement wishes. These facts, along with the changes in professional development which have accelerated dramatically in the last 10 years have resulted in salaries following an upward trend for the best of the best.

Board (member) ego. Recent real experience here at Adamen Inc.: The Board President of 1000-unit condominium complex in Southern California calls me to inquire about finding a new in-house, on-site manager after their long-term manager (PCAM) retires out. Association is very high-end with a several million dollar budget and in-house employees. This Board President expects to pay, oh, $75k. I almost burst out laughing because the reason he gave for his (very) low salary for the job: "Oh, people have always wanted to work for me. They don't care about the money, they just like working for me. I'm a wonderful boss. " Uh-huh. Now that is ego…. This Board ended up hiring a portfolio manager because she was willing to undertake the job at below market rate for the opportunity to move up (another example of association subsidization, as the Board is willing to accept an inexperienced portfolio manager undertake on-the-job training in order to save a very a small percentage of their overall budget in salary).

Lack of qualified managers. Most Boards are under the impression there will be dozens of qualified, local candidates lining up to work for them. It's simply not the case. They'll place an ad in their local paper and get dozens of resumes from real estate agents, mortgage brokers and dog groomers and only one or two (or less) from association managers who may or may not be qualified. Boards need to cast their net far and wide to find good candidates, not just those within a 40-mile radius.

Location, Location, Location. Despite "Global Warming," (living in the Northwest I can tell you that that's a crock of hooey! We've had the coldest season in recent history!) it's a lot easier to find a qualified manager to take on a property in, say, South Carolina than in Wisconsin.

Reputation. Boards should never, ever, think that how they administrate their community now, or have in the past, is a secret. It's not. If your community has a reputation for good-decision making, a thoughtful Board and "happy" owners, it will usually be easier to find a qualified manager. But if the community is contentious, litigious, micromanaging and/or with a history of manager turnover and poor administration, the harder and more expensive it will be to find a good, experienced manager.

…And a word on manager turnover. Boards should always be aware that every time they change managers, it costs the association anywhere from 6-12 months of that manager's salary in lost productivity, Board time, search time, lost corporate memory, etc. I know of associations that lose managers on a yearly basis, usually due to their internal politics or simply by hiring folks without the needed skill set for their community in an effort to save money. In other words, stupid stuff. Believe me, if "Turnover" were a line item on the financials, Boards would do everything in their power to minimize it by holding on to their good managers, paying them appropriately and not allowing politics to cost them thousands of "unseen" dollars.

Bottom line: There is a limited supply of qualified people. Often the hardest words for any Board to fit in to their metric, it's still a manager's market: There are a lot of on site positions. With the last housing boom many more associations came on line putting even more pressure on the manager market. Supply is low and demand is high for qualified managers.

Now what? Make the Worlds Collide Softly

What to do with all this information if you are a Board of Directors and looking to replace your current manager? Blend the metrics? Yes, but maybe better said as "make the worlds collide softly." The Board should start by asking themselves these important questions:

Where have we been? Has your association had an executive administrator or an administrative assistant? And how did it work, and why, or why not? Do you have a small budget and heavy Board involvement for the foreseeable future? If so….

Are we willing to subsidize the association? Is your Board - all of your Board - willing to subsidize the association, enabling it to pay lower wages to a manager or administrative assistant because the Board is willing to undertake a number of duties? If so, then maybe a manager with a lower skill-set is right for you. But be advised, my friends, that I never, ever recommend this path to any association because, frankly, the Board usually does not have sufficient time required nor is qualified to manage an association. But, if you do choose this path, keep in mind that today, your Board may be willing and able, but tomorrow they may not. Then what?

Where do we want to go? Define your scope. Is your Board happy with the status quo? Or does a majority think a change in scope of service is in order? If so, define the scope and be very specific here - define exactly what your community wants, and more importantly where it needs, to go.

What can we pay? Let's be realistic. Your association may be ready for a top-notch manager, but you may not be able to afford one yet. If you are unwilling to raise dues to hire this manager, think beyond this year and into the next, act with prudence and adjust your budget accordingly. And I urge all of you not to be unduly frugal in this endeavor: The quality of your manager can have a direct affect on the well-being of your residents, and even on your property values. Not to mention make life a lot easier for the Board.

Get help. Boards, you do have information resources. CAI and the CAI Research Foundation provide a wealth of information to associations, much of it free. Salary surveys and Best Practices Reports are just two examples. [3] You can network with fellow Board members at your local CAI chapter and see what they are doing. For even more assistance, look to your association counsel - who usually is aware of the options open to your community and can give you advice and information on each course of action that will best suit your needs. Information is a powerful tool for good decision making. Good decisions cannot be made in a vacuum.

The Wrap Up

What's the cost to replace an on site manager, be they executive administrator or administrative assistant? Well, likely a lot more than any current Board thinks (with some minor exceptions), because they have based their metric on subjective information and experience, not on current industry trends or standards. Many associations have been fortunate enough to be subsidized by their manager or by themselves, or are dealing with other baggage that leads them out in to the weeds, away from hard industry-based metrics. Every Board should endeavor to find out what the true value of the management service is even if that causes "worlds to collide." To that end, industry information and involvement is essential.

There are many ways to manage an association, and what communities are doing now may suit them just fine. But Boards need to understand that what they have today, this week, or this year may not be what is available to them tomorrow, next week, or next year. In fact, chances are very high it will not. When looking for that replacement, or just making sure you are going to keep your current manager, think about your metric, and think about the one I have outlined above. Take in to account what you have now and what you want going in to the future, take your ego out of it and above all be realistic. Always hire as much professionalism as you can afford - really afford, not just some arbitrary dollar figure that's overly frugal. Somewhere within all of these, you'll be able to find the manager you need, at a price that is right for both of you.