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.
Compensation and benefits is certainly an area of contention in non-profits. This being my first experience in a non-profit it is quite difficult to adjust to.
Sadly, I think non-profits are so concerned about money that they don't realize the importance of recruiting the best workers. For example, just last week I met the candidate of our dreams, our salary offer was too low for her but she later agreed to meet us halfway. Unfortunately the organization was unwilling to spend an extra $3000 on this wonderful candidate despite the fact that the money was there because it wouldn't be fair to the other employees.
Our benefits are now comparable to for-profit organizations and our pay is definitely well below the for-profit level. There's just no way non-profits can compete. We're left with the people who don't do it for the money, which aren't always the greatest candidates out there.
Posted by: Rachel - The Employment File | February 11, 2008 at 04:18 PM
Ann,
This is such an interesting post to read after having been out of the blogosphere for a couple of months!
Two of the most daunting obstacles faced by nonprofits are
(a) a growing scarcity of funds (charitable giving is increasing at a much slower rate than the increasing proliferation of nonprofits, meaning the competition for limited funds is only getting fiercer) and
(b)Nonprofit organizations tend to be operated by well-meaning people who nevertheless fail to understand that they must consider themselves a *business* and operate accordingly.
I disagree, however, with the assertion that "nonprofits just can't compete." When I took a job as executive director for a nonprofit, I sure wasn't in it for the money! NP employees know they probably won't be earning market rate. However, they do expect to have their skills and services properly acknowledged and compensated, and this is where all the business-like acumen and cleverness a nonprofit can muster comes into play, as they must go "a-wooing.."
Posted by: almostgotit | February 18, 2008 at 08:38 PM