In a post earlier this week, we spoke with Paul Gavejian of Total Compensation Solutions (TCS) about some interesting trends in formal bonus/incentive compensation plans among nonprofits that were revealed in the firm's most recent edition of its annual Not-For-Profit Survey. Today, in Part 2 of our interview with TCS, we take a look at overall total compensation trends among non-profits; specifically some shifting in different elements - particularly benefits - of the total compensation package provided by these organizations.
Q: The press release for the most recent edition of your Not-For-Profit Survey notes a movement toward more moderate benefit packages for nonprofits, a sector that has traditionally been known for providing generous benefits (often to compensate for less-than-generous cash compensation). Is this change in the benefits packages primarily in the area of health benefits – or are other benefit elements being impacted as well?
A: We observe that there is moderation in the benefits package in two areas. First, in reaction to significant increases in the cost of medical premiums, non-profits appear to be asking their employees to share the premium rather than absorb the full cost of double-digit premium increases. We observe that the costs of these specific benefits reported by participants are down. In a market where health costs are increasing at double-digit levels, we believe that employees are being asked to contribute 5% to 10% more of the overall cost of these benefits than in the past. The second area of moderation is in retirement pension benefits where there is a reduction in the number of organizations that offer a match to the 401(k) or 403(b) plans that these organizations sponsor. Here we observe a marginal reduction in both the number of organizations offering defined contribution and defined benefit plans as well as the actual percent of match on employee contributions.
Q: Is this trend, from what you have noted, primarily a response to cost increases, or are there other factors at play?
A: These trends are definitely in response to costs. With finite operating budgets or budgets that are growing marginally, these organizations have to cut back on something. The biggest line item cost is employee pay and benefits and it’s the one area where they can cut back and show significant cost savings.
Q: As this shift is happening, do you note (through your survey) an offsetting increase in the competitiveness of not-for-profit salaries – or other areas of total compensation?
A: Non-profits need to maintain their competitiveness so they have to find ways to cut back on their costs. They have more control over salaries and bonuses and can adjust these to meet their limited budget. The area where they exercise less control is in benefits, which third parties tend to control (insurance companies raising the cost of health care premiums). While it may be drastic, a change in the cost sharing arrangement or an increase in deductibles or co-pays is an effective way to deal with these increasing health care costs. And, by the way, this is the way that for-profits are dealing with the increasing costs as well.
Q: How will this shift, in your mind, impact the ability of nonprofits to compete in the marketplace for talent?
A: The ability of non-profits to effectively compete will depend on several factors. While pay will remain relatively low compared to the for-profit sector, benefits can be an effective means of reducing costs and that’s what they need to do. We suspect that non-profits will continue to push their mission objectives and attract employees using this factor. It’s an effective means of drawing new staff members that want to be involved in a good cause. In summary: The bottom line for nonprofit organizations is that they need to ‘take it up a notch’ in their competition with for-profit companies. They need to recruit talented staff from recent college graduates and from other non-profits and the best way to do this without breaking the bank is to offer a truly competitive cash compensation package and more realistic benefits.
Total Compensation Solutions (TCS) is a human resources consulting firm dedicated to assisting clients in achieving their strategic compensation objectives. The firm uses market data to identify best practices in a variety of topical areas including: compensation; performance management; organization structure; health and welfare; and retirement benefits.