Transitioning to a New Era: C&B at Nonprofits
by Lindsay Edmonds Wickman
How can nonprofits consider raising salaries when their mission is to fight world hunger? How can they pay for medical benefits when those dollars could help millions of people with AIDS? It seems contradictory to talk about compensation and benefits in the nonprofit sector, but nonprofits are required to address these issues if they want to attract the best and brightest talent - employees who will fight for causes and use their capabilities to effect social change.
To secure this talent, some nonprofits are moving away from the dated compensation and benefits package in which medical and retirement benefits are generous and salaries lacking. Talent shortages have compelled nonprofits to raise salaries using nonprofit peer data, just as for-profit companies have.
"In terms of compensation, nonprofits are still operating out of the late 1980s, early 1990s," said John Palien, a director in global development at ORC Worldwide, an international human resources consulting firm. "They've got to bring themselves up to today's compensation plans and programs and be much more creative, much more open to different types of compensation and employment practices."
Developing a competitive compensation and benefits package may not be an easy road, though. Raising salaries may mean less money for programming, which can frustrate donors and cause them to withdraw funding. To navigate this tenuous balance between programming and administrative costs, nonprofits should cultivate donor partnerships.
"Over the past 10 to 15 years, [there's] been an increased expectation of the professionalism of nonprofit organizations on the part of funders," said Curtis Grund, vice president of global development at ORC Worldwide. "It's fair then for organizations to turn around and say, 'OK, if we're expected to deliver measurable return and professional results, I need to pay much more than I am paying now in order to get top-quality staff to deliver this.'"
The Rise of Incentive Compensation
The Gordon and Betty Moore Foundation, which is dedicated to advancing environmental conservation and scientific research in the San Francisco Bay Area, is one of a growing number of nonprofits using incentive compensation as a recruiting strategy.
At the foundation, each position is compensated according to the median salary for the same job role in similar nonprofits and only changes if the market changes. If an employee is promoted, the salary will rise as the median rises. because there are no merit increases on salary, all employees are eligible for incentive compensation that is awarded based on performance.
"[It's] a way for us to manage our costs," said Saul Macias, associate director of human resources at the Gordon and Betty Moore Foundation. "If we have a particularly productive year, we're happy to provide additional incentives. If we have a year that's not particularly productive, salaries are maintained at the median, and our incentive compensation works as a way to maintain our costs."
Historically, nonprofits have not adopted incentive compensation plans because of difficulties measuring performance.
"If a nonprofit does not have clear, measurable goals that can be cascaded down to specific individuals, you don't have a reliable way to assess whether performance has been good or bad," Macias said. "[But] there's been a higher penetration of nonprofits going this direction because they're getting more sophisticated about how they measure individuals' performance. "
According to a recent survey of 449 nonprofits by Total Compensation Solutions (TCS), approximately 42 percent offered incentive plans in 2007. Martha Glantz, senior director for TCS, said more nonprofits are moving in this direction to be more competitive with for-profits. But successful incentive solutions require a strategic plan that looks forward and trickles concrete objectives down to employees. Further, the organization must identify specific employee objectives and what the organization will do to help them meet those objectives.
But when a nonprofit's mission is an abstract goal, how can it measure each employee's effectiveness? This is where nonprofits can take a cue from the for-profit sector, Macias said. The Gordon and Betty Moore Foundation aligned its operating model to its mission more than seven years ago.
"We struggled to create a road map that will give us indicators for how effective we are," Macias said. "We created what we call 'measures of success,' seven- to 10-year business models that have very specific goals under each of our fundamental programmatic themes. Once you have those indicators and those measures in place, you can roll those down to individuals. Then individuals have a road map for what they need to do from year to year in order to be successful."
At the individual level, the foundation uses SMART criteria (specific, measurable, attainable, realistic and timely) to write objectives that are set and communicated at the beginning of each year and then assessed at year's end. The individual's assessment is then combined with the foundation's overall assessment to determine the incentive award for each of the foundation's 79 employees.
"If we reached a point where we felt that our compensation strategy was not meeting our needs, we would absolutely make more changes," Macias said. "So far we've been fortunate, and we've been able to attract the talent we need with the policies that we have."
The Decline of Health Benefits
Just as it happened in the for-profit sector, more and more nonprofits are moving away from 100 percent employer-paid health insurance as costs continue to rise. In the past, there was an implicit bargain between nonprofit employers and employees: The latter knew they wouldn't get a hefty salary, but they could rely on a long-term career, a healthy retirement fund and fully paid medical benefits. That isn't available anymore.
"In order to attract top talent, nonprofit organizations are starting to get really creative about how they manage their benefits and compensation, and try to do so in a way that is more aligned with the goals of the organization than it ever has been," Macias said.
In the TCS survey, only 28 percent of the nonprofits surveyed offered 100 percent employer-paid medical insurance in 2007. Of those that did not offer full-paid medical insurance, employers paid an average of 83.2 percent of the premium, and the employees paid an average of 16.8 percent.
The Gordon and Betty Moore Foundation is one of the few nonprofits left picking up the tab for its employees' health benefits. The foundation manages costs by changing vendors and brokers without changing employees' core benefits.
"Not all nonprofits are necessarily the same," Macias said. "As a private nonprofit foundation, we have more resources that we can throw at our benefits. The cost has increased dramatically over the last four years, [but] we haven't changed our benefits because we still see that as a critical component of our total rewards policy."
Think Out of the Box
After lifelong careers in corporate America, many baby boomers will retire ready to move on to the next stage of life. For some that may mean volunteering for a social cause. As a talent shortage brews, nonprofits stand at a prime advantage to take on these retiring boomers.
"Perhaps they've been in corporate jobs for most of their life and it hasn't been their true passion," said Lenny Sanicola, benefits practice leader for WorldatWork, an association of human resource professionals. "Now they may retire and go to work for a nonprofit organization where they have an opportunity to pursue a passion or be a part of an organization whose mission they value. Nonprofits would be well-served to take advantage of that opportunity because, as that sector continues to grow, they're going to experience some talent [shortages]. "
Promoting their mission and providing flexible work schedules are two strategies nonprofits can use to harness this retiring generation.
"Baby boomers have made their nest egg. They'll have achieved whatever career goals they have aspired to achieve, so the mission-driven work is very compelling," Macias said. "The salary's not what they're after. They're going to value flexible work schedules, and the fact that we have ours in place will help us."
In the nonprofit sector, creating a competitive compensation and benefits strategy is important to attract talent, but developing a total rewards package may be more important.
"Employees nowadays are looking at the whole package: 'What's my base salary, do I have incentives, what are my benefits, can I telecommute, can I have flex time, can I have a relaxed dress code and is it family-friendly? '" Glantz said. "[If] a not-for-profit can offer what's considered an attractive total rewards package, [it's] going to help that company."
In addition to a more flexible working environment, nonprofits can use their missions to compete against for-profits for talent.
"[Nonprofits] have to look beyond their traditional compensation and benefit packages," said Sanicola. "It might be the humanitarian mission. In some cases, it might be the flexibility of working there. It's really looking for other ways to brand and market and build that competitive advantage."
"We have to be creative about how we define parity," Macias said. "We have to look at that suite of total rewards. We have to be more creative about the tools we use and how we use benefits to make a compelling value proposition for employees who might otherwise not consider a nonprofit. There's extrinsic and intrinsic value, and when you consider all of those things, yes, we think we are competitive. "
[About the Author: Lindsay Edmonds Wickman is an associate editor for Talent Management magazine
by Lindsay Edmonds Wickman
How can nonprofits consider raising salaries when their mission is to fight world hunger? How can they pay for medical benefits when those dollars could help millions of people with AIDS? It seems contradictory to talk about compensation and benefits in the nonprofit sector, but nonprofits are required to address these issues if they want to attract the best and brightest talent - employees who will fight for causes and use their capabilities to effect social change.
To secure this talent, some nonprofits are moving away from the dated compensation and benefits package in which medical and retirement benefits are generous and salaries lacking. Talent shortages have compelled nonprofits to raise salaries using nonprofit peer data, just as for-profit companies have.
"In terms of compensation, nonprofits are still operating out of the late 1980s, early 1990s," said John Palien, a director in global development at ORC Worldwide, an international human resources consulting firm. "They've got to bring themselves up to today's compensation plans and programs and be much more creative, much more open to different types of compensation and employment practices."
Developing a competitive compensation and benefits package may not be an easy road, though. Raising salaries may mean less money for programming, which can frustrate donors and cause them to withdraw funding. To navigate this tenuous balance between programming and administrative costs, nonprofits should cultivate donor partnerships.
"Over the past 10 to 15 years, [there's] been an increased expectation of the professionalism of nonprofit organizations on the part of funders," said Curtis Grund, vice president of global development at ORC Worldwide. "It's fair then for organizations to turn around and say, 'OK, if we're expected to deliver measurable return and professional results, I need to pay much more than I am paying now in order to get top-quality staff to deliver this.'"
The Rise of Incentive Compensation
The Gordon and Betty Moore Foundation, which is dedicated to advancing environmental conservation and scientific research in the San Francisco Bay Area, is one of a growing number of nonprofits using incentive compensation as a recruiting strategy.
At the foundation, each position is compensated according to the median salary for the same job role in similar nonprofits and only changes if the market changes. If an employee is promoted, the salary will rise as the median rises. because there are no merit increases on salary, all employees are eligible for incentive compensation that is awarded based on performance.
"[It's] a way for us to manage our costs," said Saul Macias, associate director of human resources at the Gordon and Betty Moore Foundation. "If we have a particularly productive year, we're happy to provide additional incentives. If we have a year that's not particularly productive, salaries are maintained at the median, and our incentive compensation works as a way to maintain our costs."
Historically, nonprofits have not adopted incentive compensation plans because of difficulties measuring performance.
"If a nonprofit does not have clear, measurable goals that can be cascaded down to specific individuals, you don't have a reliable way to assess whether performance has been good or bad," Macias said. "[But] there's been a higher penetration of nonprofits going this direction because they're getting more sophisticated about how they measure individuals' performance. "
According to a recent survey of 449 nonprofits by Total Compensation Solutions (TCS), approximately 42 percent offered incentive plans in 2007. Martha Glantz, senior director for TCS, said more nonprofits are moving in this direction to be more competitive with for-profits. But successful incentive solutions require a strategic plan that looks forward and trickles concrete objectives down to employees. Further, the organization must identify specific employee objectives and what the organization will do to help them meet those objectives.
But when a nonprofit's mission is an abstract goal, how can it measure each employee's effectiveness? This is where nonprofits can take a cue from the for-profit sector, Macias said. The Gordon and Betty Moore Foundation aligned its operating model to its mission more than seven years ago.
"We struggled to create a road map that will give us indicators for how effective we are," Macias said. "We created what we call 'measures of success,' seven- to 10-year business models that have very specific goals under each of our fundamental programmatic themes. Once you have those indicators and those measures in place, you can roll those down to individuals. Then individuals have a road map for what they need to do from year to year in order to be successful."
At the individual level, the foundation uses SMART criteria (specific, measurable, attainable, realistic and timely) to write objectives that are set and communicated at the beginning of each year and then assessed at year's end. The individual's assessment is then combined with the foundation's overall assessment to determine the incentive award for each of the foundation's 79 employees.
"If we reached a point where we felt that our compensation strategy was not meeting our needs, we would absolutely make more changes," Macias said. "So far we've been fortunate, and we've been able to attract the talent we need with the policies that we have."
The Decline of Health Benefits
Just as it happened in the for-profit sector, more and more nonprofits are moving away from 100 percent employer-paid health insurance as costs continue to rise. In the past, there was an implicit bargain between nonprofit employers and employees: The latter knew they wouldn't get a hefty salary, but they could rely on a long-term career, a healthy retirement fund and fully paid medical benefits. That isn't available anymore.
"In order to attract top talent, nonprofit organizations are starting to get really creative about how they manage their benefits and compensation, and try to do so in a way that is more aligned with the goals of the organization than it ever has been," Macias said.
In the TCS survey, only 28 percent of the nonprofits surveyed offered 100 percent employer-paid medical insurance in 2007. Of those that did not offer full-paid medical insurance, employers paid an average of 83.2 percent of the premium, and the employees paid an average of 16.8 percent.
The Gordon and Betty Moore Foundation is one of the few nonprofits left picking up the tab for its employees' health benefits. The foundation manages costs by changing vendors and brokers without changing employees' core benefits.
"Not all nonprofits are necessarily the same," Macias said. "As a private nonprofit foundation, we have more resources that we can throw at our benefits. The cost has increased dramatically over the last four years, [but] we haven't changed our benefits because we still see that as a critical component of our total rewards policy."
Think Out of the Box
After lifelong careers in corporate America, many baby boomers will retire ready to move on to the next stage of life. For some that may mean volunteering for a social cause. As a talent shortage brews, nonprofits stand at a prime advantage to take on these retiring boomers.
"Perhaps they've been in corporate jobs for most of their life and it hasn't been their true passion," said Lenny Sanicola, benefits practice leader for WorldatWork, an association of human resource professionals. "Now they may retire and go to work for a nonprofit organization where they have an opportunity to pursue a passion or be a part of an organization whose mission they value. Nonprofits would be well-served to take advantage of that opportunity because, as that sector continues to grow, they're going to experience some talent [shortages]. "
Promoting their mission and providing flexible work schedules are two strategies nonprofits can use to harness this retiring generation.
"Baby boomers have made their nest egg. They'll have achieved whatever career goals they have aspired to achieve, so the mission-driven work is very compelling," Macias said. "The salary's not what they're after. They're going to value flexible work schedules, and the fact that we have ours in place will help us."
In the nonprofit sector, creating a competitive compensation and benefits strategy is important to attract talent, but developing a total rewards package may be more important.
"Employees nowadays are looking at the whole package: 'What's my base salary, do I have incentives, what are my benefits, can I telecommute, can I have flex time, can I have a relaxed dress code and is it family-friendly? '" Glantz said. "[If] a not-for-profit can offer what's considered an attractive total rewards package, [it's] going to help that company."
In addition to a more flexible working environment, nonprofits can use their missions to compete against for-profits for talent.
"[Nonprofits] have to look beyond their traditional compensation and benefit packages," said Sanicola. "It might be the humanitarian mission. In some cases, it might be the flexibility of working there. It's really looking for other ways to brand and market and build that competitive advantage."
"We have to be creative about how we define parity," Macias said. "We have to look at that suite of total rewards. We have to be more creative about the tools we use and how we use benefits to make a compelling value proposition for employees who might otherwise not consider a nonprofit. There's extrinsic and intrinsic value, and when you consider all of those things, yes, we think we are competitive. "
[About the Author: Lindsay Edmonds Wickman is an associate editor for Talent Management magazine