I note a tendency, when designing incentive plans for the executives of nonprofit organizations, to stack the deck in favor of financial performance when establishing and weighting performance measures. Some thoughts in this regard...
While financial performance (as examined through metrics like revenues generated, funds raised, adherence to budget, etc.) is certainly a critical element in effectively directing and managing a nonprofit (no margin, no mission, after all), it is important to resist the urge to put too much emphasis there. On the one hand, the IRS and other regulatory agencies frown upon the tying of executive rewards too tightly to financial gains. Perhaps more importantly, though, we must bear in mind that strong financial performance is not the end being sought for a tax-exempt institution, but rather the means required to pursue and achieve the organization's charitable mission. With this in mind, executive incentive plans must include and emphasize metrics that are tied directly to mission pusuit and achievement, in addition to those which reflect a strong balance sheet.
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