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3 Tips to Design a Transparent Nonprofit Compensation Strategy

By Sonnet Lauberth, PayScale Compensation ProfessionalPayScale reports that a more transparent compensation policy can support the recruitment and retention of employees at many non-profit organizations, especially in a growing multi-generational environment.

PayScale reports that a more transparent compensation policy can support the recruitment and retention of employees at many nonprofit organizations, especially in a growing multi-generational environment.


According to Nonprofit HR, 1 in 3 nonprofits report that hiring is the biggest staffing challenge. 

Voluntary turnover rates are increasing, signaling that employees have increased confidence in the job market and are willing to leave for better opportunities. It’s great to see organizations hiring again as we bounce back from the recession, but this increased competition for talent means nonprofits have to start thinking more strategically about their compensation budgets.

When it comes to salary and compensation, each generation is looking for different things, and each have a separate set of skills to offer to a new workplace. PayScale’s whitepaper on Compensation Challenges for a Multi-generational Workforce, states that a certain level of transparency with compensation will go a long way when it comes to competing for talent in a very competitive market.

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Nonprofits used to be able to attract employees with their mission alone, as compensation wasn’t necessarily the driving factor for potential employees. However, with the rise of the Millennial Generation in the workforce, employees now expect a living wage and simply having an attractive mission is often not enough anymore. What does this mean for your organization? Without the right compensation strategy, you could be finding yourself with more than a few open positions. Here are the top three ways to make sure your organization is aligned with best practices for compensation this year:

Tip #1 – Create a Nonprofit Compensation Philosophy and Strategy

A compensation philosophy explains the role of compensation in your organization and tells your employees how you believe people should be paid, while your compensation strategy explains how you will achieve this philosophy. There are three things to look for when it comes to creating a strong compensation strategy in the nonprofit sector.

  • Who do you compete with for talent? Nonprofits aren’t only competing with other nonprofits so consider all of your competitors for talent in your compensation strategy. Think about specific departments and how they might differ. For example, are you drawing talent for your Finance department from the for-profit sector or specific industries? What about your Development team?
  • How competitive do you want to be in your market? Do you want to pay at the median of the market and target the 50th percentile? Or do you want to be an organization leading the market and targeting higher? Consider targeting higher in your market for key departments and areas that are critical to your organization. 
  • Does your compensation philosophy and strategy support your organization’s mission? If your organization’s mission is focused on social justice, yet employees are struggling financially due to low pay, there might be a disconnect between your mission and compensation philosophy. Be sure your pay practices are aligned with your vision and values to attract and retain the best talent. 

Tip #2 – Think About the Full Nonprofit Compensation Picture

There are many goals for any compensation program. It should be affordable for the organization, internally equitable, externally competitive, help to attract, retain, and motivate talent, legally defensible, and create an alignment between the employee and organizational goals. Some things to consider when developing your compensation program are:
  • What do you want to reward? Many organizations are starting to move away from the practice of rewarding tenure and giving across-the-board increases, or COLAs, each year. Employee burnout can be common at non-profits so consider rewarding performance to increase employee motivation. Think about the culture at your organization and if your people would feel more encouraged by rewarding tenure, performance, or a mix of both.
  • What makes up your total comp package? The reality is that budgets are tight and there are other ways to keep employees engaged in addition to base pay. Do you offer great benefits? Extra PTO? Flexible work schedules or work-from-home days? Get creative about your total rewards package and find a balance that supports your employees and your budget. 

Tip #3 – Good Compensation Begins with Good Communication

Perhaps even more important than developing a strong compensation program is communicating it. After all, if your employees are not aware that you have a non-profit compensation philosophy and strategy in place, it’s not going to be as effective.

  • Know your audience. What are the key messages you want to provide to employees? What about managers? Consider your different audiences and the messages that will be important to them. 
  • Be consistent. Once you decide on your key messages, make sure communication with staff is consistent, regardless of who the message is coming from. This will foster a culture of trust and confidence around pay. 
  • Communicate often. In many organizations, talking about compensation once a year isn’t enough. Develop a communication timeline to ensure all parties are appropriately kept in-the-loop and employees understand that compensation is a priority at your organization. 

Although attracting the right talent can be a struggle for any organization, being proactive about compensation and having a strong compensation program in place can certainly make it much easier.

Learn more about compensation, transparency, and how to manage a multi-generational workforce by downloading Payscale’s FREE whitepaper, Compensation Challenges For a Multi-Generational Workforce.


Sonnet Lauberth
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