Non-Profit Compensation in a Down Economy

Reality Check: Why Non-Profits Need to Evaluate Their Pay Practices in Today’s Economy

The past few years have been tricky for many non-profits. Those that have weathered the recession have done so because they have had great financial advisors or have been really creative. While our private-sector counterparts may be starting to see the light at the end, many non-profits are still struggling.

So why, you may ask, should you think about compensation now? How can you consider compensation when you haven’t been able to give salary adjustments for the past three years, or when you’re again having mandatory furloughs the week between Christmas and New Years? I would say that it’s exactly because of the continuing struggle that it’s important to get real about compensation at your non-profit.

Top Three Things Non-Profits Should Know When It Comes to Compensation

1. Know Your Compensation Philosophy

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Develop clarity about your compensation philosophy. Consider including a formal compensation philosophy in your Employee Handbook. A compensation philosophy explains the role of compensation in your organization, and communicates that philosophy to both internal and external constituents. Your compensation philosophy should address:

– How you define your market? Who is the competition; do you compete for staffing with anyone? Or, if your organization collaborates with peer organizations, how do you collectively define your market?

– How do you want to situate yourself relative to the market? Do you want to match market rates at the 75th percentile (leading)? 50th(meeting)? 25th(lagging)?

– What are you trying to accomplish with your compensation strategy? How does it support the mission of your organization? Are you trying to attract top employees, reward stellar performance, encourage longer tenure, pay a fair market rate? What does your organization value?

2. Know Your Priorities Around Compensation

Once you’re clear about your overall compensation philosophy, articulate your priorities for compensation in your organization. Is it more important to be 1) situated well externally, 2) have fairness and equity internally or 3) both? Or is there another priority that dictates how you choose to compensate your staff?

– Internal scan. Do you compensate folks differently at different levels? On different teams? How does that align with your mission or show good stewardship of resources? Do managers have responsibilities regarding compensation decisions, and if so, what support do you provide them in making those decisions?

– External benchmarking. It is good to know where you are with regard to market, especially when seeking to recruit or retain staff. Also, how close are you to target salaries, so that if and when funds become available, you know how you want to spend them?

– Strike a balance. Do you intentionally keep staff salaries at a minimum so that your organization can dedicate its financial resources to those you serve? This is important to know and communicate your approach both to staff and external constituents. Many non-profits strive to balance paying staff at a livable wage for their home locations with devoting resources to programmatic areas. The ever-present expense ratio can feel daunting at times; the key is to be clear with your compensation goals.

3. Know Your Compensation Options

While it’s nice to bring home a paycheck, these days compensation is about more than base salary. In non-profits especially, staff are generally not working primarily for their salary, but for a mix of other reasons, including dedication to the mission. In fact, studies have shown that cash compensation is not a primary motivator for staff . Consider:

– What makes up your total compensation package? Do you offer benefits? Employee Assistance Programs often come at a low cost, but contribute to work-life balance of employees.

– What are non-monetary ways that you can compensate your staff for their contributions to your organization? More flexibility of schedule? Work at home options? More group celebrations? These and other low-cost ways of compensating your staff can really pay off! Be creative! Why not ask your staff what would motivate them?

Whatever your mission, whatever your goals, the key to good compensation practices is knowing your organization, values, and staff.

Regards,

Mykkah Herner
Consultant at PayScale

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[1] http://www.huffingtonpost.com/2011/03/22/nonprofits-continue-to-fe_n_838855.html

[1] http://www.trainingmag.com/article/why-doesn%E2%80%99t-cash-motivate

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