Compensation in the Nonprofit Sector

2010 Nonprofit Executive & Emerging Leaders Certificate ProgramEmerging Leaders Track

November 3, 2010

Joe Brown

sloperesources.com

Wait, They Pay People?

SOME RIGHTS RESERVED

Founded Slope Resources in 1998

Human resources and organization managementconsulting services for nonprofits

Compensation and performance management

“Big firm” background

Blog: Done by People

Who am I?

Executive pay

Where have we been?

Where are we now?

What’s next?

Pay for performance

Questions and discussion

This afternoon…

Executive pay

Increasing scrutiny of nonprofit executive compensation

Government

Media

Public

Executive pay

Internal Revenue Service serves as nonprofit fiscal watchdog

Organization’s tax-exempt status is at stake

Intermediate sanctions – executives and board members personally liable

IRS strengthening enforcement – 155 new employees focused on nonprofits in 2009

Organizations can establish rebuttable presumption that their executive compensation is reasonable

Executive pay

IRS Form 990 – Return of Organization Exempt from Income Tax

2008: Redesigned to enhance transparency, promote compliance, reduce filing burden

2009: Further changes and clarifications

Executive pay

Executive pay

Executive pay

27% of nonprofit organizations have no formal executive compensation policy!

Schedule J provides a blueprint:

Board compensation committee

Independent compensation consultant

Other organizations’ Form 990s

Written employee contract

Compensation surveys/studies

Executive pay

…versus employee pay

A bit of philosophy…

“This is not charity. This is business.Business with a social objective…”

--Muhammad Yunus

…leads to three principles

Market

Equity

Performance

Where we have been?

Nonprofit compensation has traditionally lagged behind for-profit sector

But difference varies by level

Nonprofit

For-profit

Job "size"

To

tal

com

pen

sati

on

Where we have been?

Nonprofit compensation has traditionally lagged behind for-profit sector

Difference also varies by function

Market comes into play

“Nonprofit” jobs versus “regular” jobs

e.g. development, program vs. IT, finance

Differences even within “nonprofit” jobs

e.g. direct service vs. program development

Where we have been?

Year-to-year salary increases have generally tracked for-profit practices

“Four percent world”

But, increases have tended to be more homogenous

Across-the-board, COLA

Rather than performance-based

Entitlement mentality

Where we have been?

S l o w shift to performance-based (“merit”) pay

Pay levels, increases, staffing levels, even job titles often limited by grant budgets, etc.

Where we have been?

Bonuses Incentive compensation

Prevalent but limited

For many organizations, not the answer

Perception, complexity, ROI

Instead…

Where we have been?

Bonuses Incentive compensation

Prevalent but limited

For many organizations, not the answer

Perception, complexity, ROI

Instead…

Get the basics right!

Where are we now?

“It’s the economy, stupid.”

--Bill Clinton, 1992

Well-documented (and experienced) impacts

Decreased funding from all sources

Closures

Layoffs, furloughs, salary freezes, salary cuts

Where are we now?

?How many of your organizations have not experienced any of these in the last three years?

All compensation growth limited

Now a “zero to two or three percent world”

More difficult to offer “rich” benefits

Greater differences in demand within nonprofit sector

e.g., development vs. program

Where are we now?

Greater access to general market talent

e.g., IT positions

Caveat emptor!

Increased demand for performance and accountability

Funders, public

Emphasis on evaluation and measurement

Has to translate to employee performance!

Where are we now?

Increasing need to compete for talent

Most bang for the buck

Labor shortage (!)

New sectors

e.g., social enterprise, B-corporations

What’s next?

Generational forces

Demand for competitive – or at least living – wages

Shifting benefit needs/desires

What’s next?

Public, government, and funder scrutiny

May spread to non-executive levels

Increased compression

Also, focus on low end

Increasing professionalization of nonprofit sector

What’s next?

Increased recognition of the need for broader organizational support

“Administrative”, “overhead”, “indirect costs” and organization development

GAO report recognized differences in federal grants

Growing recognition and support in philanthropic community

What’s next?

Building blocks

Rewardopportunity

Compensation program

Internal equity

Market competitiveness

Performance management program

Individual/team contribution

Base salary

Incentive compensation$Actualrewards

Performance

Performance management program should focus on:

What: job responsibilities, goals

How: competencies, expectations

“Management” – not “evaluation” or “rating”

Communication – not the form!

Pay for performance

Pay for performance

Compensation program development:

Communication and input

Job descriptions

Grouping/grades

Internal equityassessment $0

$20

$40

$60

$80

$100

Job Size

Co

mp

ensa

tio

n

Pay for performance

Compensation program development (continued)

Market competitiveness assessment

Compensation philosophy development

Salary policy (e.g., median of metro organizations with budgets under $10 million)

Pay for performance

Compensation program development (continued)

Salary ranges

Minimum(80%)

Maximum(120%)

Midpoint(100%)

Performance over time

Low HighAverage

Hiring range

Pay for performance

Compensation program development (continued)

Salary administration guidelines

Implementation

Communication

Pay for performance

…and beyond

Strategicplanning

Non-cashrewards

Professional development

Career development

Succession planning

Questions and discussion

Joe Brown

jbrown@sloperesources.com

908 241-8592

sloperesources.com

twitter.com/joe_brown

Thank you!