What Do, What Should Non-Profit Rewards Drive?

In a fascinating Fast Company article, Nancy Lublin argues that earthly life cycles are critical to the efficacy of non-profit organizations.

For-profits go out of business all the time, some for good reasons, others not so much.  Lublin challenges us, however, to name a closed non-profit.

A not-for-profit exists to cure something, address an issue, or elevate the status of a group of people; if and when that's achieved, we should be done. This is a little different from the for-profit sector, where companies die of failure -- I'm calling for death by success.

By example and to reinforce her point, she presents us with the case of a well-known organization, the March of Dimes.

... an organization created with a specific goal -- to help find a cure for polio. Unlike most not-for-profits, it succeeded ... in 1955. What a huge, awesome, world-changing accomplishment! But today it suffers from mission creep, having broadened its agenda to "improving the health of babies by preventing birth defects, premature birth, and infant mortality." I like babies. I'm all for neonatal health. (I had a premature, low-birth-weight baby six years ago.) But I think the organization should have quit while it was ahead. Today, Charity Navigator gives it only one out of four stars for efficiency. I wonder if morphing from one cause to another has been part of the problem. And I think it's fair to ask, Would it have been better to celebrate the early victory and shut down?

While the core issue is one of mission definition and governance, I think Lublin's article touches on important, far-reaching talent management and reward questions for those of us who serve non-profit organizations as internal staff, as outside advisors and as board members.  Do our reward programs drive mission creep - or do they focus discretionary effort on results in service of a relevant and crisply defined cause?  Do they incent the building of "donor-funded jobs programs" - or do they allow for some semblance of the creative destruction process necessary for innovation, providing room for reforming and redirecting effort and capabilities?

I realize that not all non-profits fit the mold presented by this article, and that there are indeed charities whose missions are directed toward legitimately ongoing needs - but I think the core questions are good ones, and important for those of us HR and reward pros working in this environment. 

Social Entrepreneurship & Navigating Nonprofit Sales Incentives

The age of social entrepreneurship, where the lines between traditional business and charitable ventures start to blur, has brought some interesting challenges to compensation design.  One particular challenge is that of appropriately rewarding the growing crop of sales roles in these organizations.

This is a topic near and dear to my heart, as I have the priviledge of working with a number of nonprofit organizations who are working hard to become more creative, more entrepreneurial and more self-sustaining.  Attracting, retaining and rewarding sales and business development talent is a key piece of this new paradigm - but charitable businesses face some unique obstacles and considerations in designing effective and appropriate sales incentives.

I invite you to click over to my post at the Compensation Cafe today, where I explore this topic, offer some ideas and turn to my readers for reaction and discussion.

Thanks!

On the Price Paid for Working Nonprofit (& Why It's Wrong)

My work with nonprofits over the years has convinced me of the absolute wrong-headedness of the notion that nonprofit pay should be set at below market levels. 

Check out my rationale and some related excerpts from Dan Pallotta's Harvard Business blog Free the NonProfits over at the Compensation Cafe.

As Dan says ...

Yes, we can change the world. Yes, we must. But to do it we must right the injustice that allows a baseball player to be paid $5 million a year and have it celebrated in Forbes, but cries "foul!" when the guy running the charity trying to cure cancer makes $400,000. 

Do you agree?  Do you disagree?  Join the conversation and share your take.

 

Competitive Pay AND Accountability - a Critical Combination for Non-Profits

A recent Bloomberg article highlighting concerns about excesses in executive pay at non-profits (in this case, primarily theatres) got me thinking ...

The following excerpt from the article highlights what I think is an important angle in the issue surrounding non-profit compensation:

Paying competitively helps theaters attract and retain administrators capable of managing complex businesses, fundraising, and, as they outgrow their facilities, empire building.

Some public companies with comparable revenue pay their chief executives more than $1 million a year. Yet compensation that's modest by comparison can still rankle donors.

``Contributors are clear that when they see salaries over $200,000, they freak out,'' said Ken Berger, president of Mahwah, New Jersey-based Charity Navigator, which rates non-profits on growth and efficiency. ``They associate charity with a vow of poverty.''

To be clear, I am not defending excess compensation for any organization's executives, whether for- or not-for-profit.  A non-profit agency with overpaid executives is not likely to attract my support, or my charitable dollars.  But I see an unfortunate trend being played out here.

The non-profit world is a diverse one, made up of a wide range of very different kinds of organizations, from foundations to trade associations, from cultural and arts institutions to healthcare and social service providers.  This makes it difficult and risky to draw generalizations.  Nevertheless, here I go.

Within many (not all) non-profit sectors, there is seems to be an unspoken expectation that pay will and must be set at below-market levels.  And I'm not just talking about executives, I'm speaking to all levels of employees.  Sometimes this expectation runs hand-in-hand with the imperative to hold down administrative costs, sometimes it is the assumption underlying the public funding provided for ongoing operation.  As the HR managers supporting these organizations will tell you, this presents a real challenge to the attraction, retention and motivation of qualified employees.

This leads directly to another dilemma, and that is a reluctance to hold non-profit employees accountable - in the same way a for-profit business would - for tangible results and accomplishments.  Many non-profits struggle with the concept that dispensing candid performance feedback and direction to employees is somehow at odds with their charitable mission.  Under these conditions, the default becomes to appreciate that "people have their hearts in the right place" and to conclude that it is unreasonable to set high demands when we cannot deliver commensurate rewards. This is all wrong.  Our non-profits, or at least the lion's share of them - are doing critical work.  If we want to see them make genuine headway toward fulfilling their missions, we must ensure that they are positioned to attract and retain qualified staff, with competitive compensation levels and then we must ensure that employees at all levels of the organization are held accountable for results. 

Administrative costs?  Of course we want to keep them at a reasonable level.  But to scrimp where we should be investing - in tools, in technology and (most importantly) in talent - is to miss the opportunity to drive real improvements and results for the clients and constituents we mean to serve through these institutions.

Competitive pay and accountability (either one without the other doesn't fly) is a combination we must insist on if we want high performance from non-profit organizations.

 

 

Total Compensation Trends in Nonprofits: Interview (Part 2) with Paul Gavejian of Total Compensation Solutions

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.

More on Paying Fundraisers Based on Contributions (or not)

Kris Dunn, author of The HR Capitalist, one of my favorite blogs, has a great reaction to my recent post on fundraisers being prohibited from pay based on contributions.  Read his post (What? Non-Profit Rainmakers Can't Be Paid for Making it Rain??) and join in the blog-o-debate!

Fundraising Professionals Prohibited from Receiving Pay Based on Contributions

I continue to bump into people who design - or oversee the design of - compensation plans in non-profits and who are not aware of this potential issue, so I thought the topic worth a post.

The Association of Fundraising Professionals, as part of its Code of Ethical Principles and Standards, specifically prohibits its members from accepting compensation that is based directly on fundraising contributions.

Specifically, the code states:

(21) Members shall not accept compensation or enter into a contract that is based on a percentage of contributions...

This does not mean that incentives - or performance-based compensation - is off the table for fundraising and development positions.  As the code states:

(22) Members may accept performance-based compensation, such as bonuses, provided such bonuses are in accord with prevailing practices within the member's own organization and are not based on a percentage of contributions.

And yet contribution-based incentive plans, many of them astonishingly commission-like in their structure, continue to proliferate in fundraising and related fields.  Even in the face of Intermediate Sanctions regulations (IRS 4958) which prohibits any revenue-sharing arrangements as cases of private inurement.

In my work with non-profits, and particularly in the development and fundraising areas, I encourage a focus on "lead" measures when designing incentive and other pay-for-performance programs.  Lead measures, as I've posted before, focus on achievements that are predictive of success; in this case, success in securing contributions.  Lead measures could reflect the attainment of key elements of a fundraising strategy - which might range from communication to event management to internal process improvement - and which should lead ultimately to fundraising success.  Conversely, the contributions themselves are a "lag" measure, reflecting success that has already taken place (similar to traditional for-profit accounting measures like revenues and net income).

Even the for-profit world is placing increasing emphasis on "balanced" and forward-thinking metrics; lead as well as lag measures.  For non-profits, however, the notion of balance in measures is critical, particularly as we begin tying them to compensation.

And, as one of my favorite quotes goes, someone once said that running an organization solely on the basis of lag measures is like steering a boat by looking at its wake.   

Bonuses to Top Nonprofit Executives Rise Significantly

The amount of money that the nation's largest nonprofit organizations paid in bonuses to their top executives more than doubled from 2005 to 2006, according to a recently released Chronicle of Philanthropy survey of executive compensation in 298 charities and foundations.

According to the Chronicle, average bonus payments to top executives grew from $69,477 in 2005 to $142,700 in 2006.

This finding is aligned with what seems to be a growing interest among nonprofit organizations and their boards in tying executive compensation to organizational performance.  To this, I would submit my observation that the nonprofit sector is not yet as experienced as the for-profit sector in developing and managing incentive pay.  The design of incentive plans in nonprofit organizations must reflect considerations not present in the for-profit sector, including - but not limited to - the nature of the organization's tax-exempt mission and the increasing scrutiny of regulatory and other bodies (such as the IRS and Attorneys General) on these compensation arrangements.  One case in point noted by the Chronicle is the Association of Fundraising Professionals which - as part of its professional code of ethics - prohibits members from tying their compensation directly to fundraising performance.  Fundraising executives and professionals, who are also part of the increasing trend toward incentive pay, must develop and use plans that consider and focus on broader, mission-related considerations in order to comply.

Related Posts:

Chronicle of Philanthropy to Hold Online Discussion of Executive Compensation

On Executive Incentives in Nonprofits

Incentive Compensation in Nonprofits

Chronicle of Philanthropy to Hold Online Discussion on Nonprofit Executive Compensation

The Chronicle of Philanthropy will hold on online discussion about executive pay in the nonprofit field on Wednesday, September 26, 12 noon Eastern time.  The discussion, which is open to everyone (not just Chronicle subscribers), will feature as guests Lyn Brennan, an executive recruiter at Battalia Winston International, and Stephanie Geller, a researcher at Center for Civil Society Studies at Johns Hopkins University, and will also cover some "intriguing findings" from the Chronicle's recently released survey of nonprofit executive compensation.

Related Posts:

Bonuses to Top Nonprofit Executives Rise Significantly

Work Environment Drives Employee Engagement

In a comment to my previous post on Work Environment as a Reward Element, which looks at the powerful role that both the physical and psychic aspects of work environment play in attracting and retaining employees, Frank Giancola shared an interesting piece of research from a Towers Perrin study a few years ago.

The TP study Working Today: Understanding What Drives Employee Engagement examines the level of engagement in the workforce, and also looks at the elements of work that most strongly drive employee engagement.

Interesting finding #1:  Employee engagement is higher in nonprofits than in any other industry segment.

Look at the following data, which highlights the % of employees surveyed who score as "highly engaged" (high scores across all engagement factors surveyed) by industry sector -

• High technology - 15%
• Insurance - 18%
• Pharmaceuticals - 16%
• Heavy manufacturing - 14%
• Hospital - 15%
• Finance/banking - 17%
• Nonprofit - 42%
• All industry composite - 17%

Interesting finding #2:  Employee engagement is driven by work environment, not pay and benefits. 

Now take a look at what the TP study found to be the top ten drivers of employee engagement.  Notice that neither pay nor benefits shows up in this list, which syncs up with what we know to be mostly true:  that the nonprofit sector is not "buying" high levels of engagement through generous compensation offerings. 

1. Senior management interest in employees
2. Challenging work
3. Decision-making authority
4. Customer orientation
5. Career advancement opportunities
6. Reputation of the company
7. Collaboration with coworkers
8. Resources to get the job done
9. Input on decision making
10. Senior management vision

Most of these engagement drivers can be classified as aspects of the work environment - reinforcing the point that this "qualitative" aspect of employment at your organization is just as important as the more "quantitative" (i.e., pay and benefits) elements, and that your total reward philosophy must take into account the entire picture.

And for nonprofits in particular:  don't overlook the opportunity you have to capitalize on your work environment to attract, retain and engage employees.