wait, they pay people?: compensation in the nonprofit sector (rutgers)
DESCRIPTION
This presentation from Rutgers Business School's 2010 Nonprofit Leadership Certificate program, offers emerging nonprofit leaders an overview of compensation practices and trends in the nonprofit sector. The presentation begins with a brief overview of executive compensation, followed by explorations of the past, present, and future of nonprofit pay, and closes with a primer on pay for performance approaches.TRANSCRIPT
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