Compensation Force

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.

Incentive Award Trends for Non-Management Positions

I did some analysis on trends in incentive prevalence and average award size for non-management jobs, and thought I'd share some highlights here.  Sources for this information include newly released surveys from Watson Wyatt Data Services and others, representing thousands of organizations and hundreds of thousands of employees nationally.  I have also separated the data by profit sector, to look at not-for-profit practices versus those of for-profit organizations.  (The careful observer will note that the dominance of for-profit practices in the "all" data, probably due to sample sizes.)

Note also that the prevalence statistics here reflect employees who received an incentive award, not those who were eligible to receive one (presumable a larger number, as not every incentive plan pays out each year or for each employee).

Production/Technical/Trades Positions

• Percent receiving an incentive award
  • For-profit organizations:  32%
  • Not-for-profit organizations:  11%
  • All organizations:  28%
• Average incentive award paid (as % of base salary)
  • For-profit organizations:  4.4%
  • Not-for-profit organizations:  3.5%
  • All organizations:  4.3%

Office/Administrative Support Positions

• Percent receiving an incentive award
  • For-profit organizations:  39%
  • Not-for-profit organizations:  13%
  • All organizations:  35%
• Average incentive award paid (as % of base salary)
  • For-profit organizations:  5.6%
  • Not-for-profit organizations:  4.3%
  • All organizations:  5.5%

Professional Positions

• Percent receiving an incentive award
  • For-profit organizations:  41%
  • Not-for-profit organizations:  15%
  • All organizations:  37%
• Average incentive award paid (as % of base salary)
  • For-profit organizations:  7.5%
  • Not-for-profit organizations:  5.7%
  • All organizations:  7.4%

Free Compensation Planning Survey for Midwest Nonprofits

Altura Consulting Group conducts an annual compensation planning survey for nonprofit organizations in the Midwest - as in the past, all participating organizations will receive a complimentary copy of the report of survey results!

Survey content includes:

• Actual 2007 and projected 2008 salary increases
• Actual 2007 and projected 2008 salary range structure adjustments
• Prevalence of bonus/incentive opportunities and most recent average awards for different employee groups

If you are a nonprofit organization located in the states of Minnesota, North Dakota, South Dakota, Montana, Iowa, Wisconsin and/or Nebraska, you can learn more and participate by downloading the brief survey participation questionnaire below.

Download 2007_nonprofit_sal_plng_survey_questionnaire.doc

The survey participation deadline is August 3, 2007.  The survey report will be issued in September, 2007.

Driving Performance and Accountability Key to Pursuing a Tax-Exempt Mission

As someone who has the opportunity to work with a number of nonprofits, I am a fan of the GiveWell blog, particularly its focus on performance management, and wanted to call attention to a recent post on the necessity of honest feedbacks for and in nonprofit organizations.

While a number of the nonprofits I've worked with are skilled at performance management, others struggle with the concept that dispensing candid performance feedback and direction to employees is somehow at odds with their charitable mission.

Holden makes the central point that a climate of unfiltered feedback and a willingness to accept and learn from criticism is key to advancing the mission.  His open letter to nonprofit employees is rather harsh and blunt in parts, but his points are important to consider (and he is willing to turn the mirror of truth back on himself and his initiative as well).  In the letter, he asks and then addresses the question of why people choose to work for a nonprofit organization:

I hope the answer is that you care more about making the world a better place more than just about anything else.  If that's right, then consider how helpful criticism - all criticism, regardless of tone - can be to your mission.  Unfiltered criticism is the best way to get others' perspectives on what you're doing, which unless you're already omniscient is hugely valuable information.  If you get offended by criticism to the point where you fail to learn from it - or worse, get demoralized - this is hurting the people you're trying to help.  So don't

Working out can be painful and unpleasant (granted, I'm largely speculating here), but any aspiring athlete who skipped it would be a joke.  The mental equivalent is learning from criticism, and if you're putting yourself forward as a person who can use others' money to improve the world, you'd better be ready to put learning and improving first, and your feelings second (or twelfth).  So here's my advice to you:  seek out as much feedback as you can, push people to be honest, and get so used to negative feedback that its emotional impact wears off (leaving only the educational impact)...

If you find yourself unable to do this, I have only one explanation: that helping people isn't the core of your motivation.  That you care more about your short-term emotions, day to day, than about the good work you're trying to do.   That you've chosen nonprofit over for-profit not because you want to improve the world, but because it's a nice, cuddly atmosphere where you will never be challenged.

I don't endorse the idea that criticism is always best delivered raw and unfiltered; I think delivering negative (and positive) feedback is a skill worth investing in (as part of a broader performance management effort) - yet, it is also important to remember that a willingness to call out and discuss performance issues is a necessary first step to improvement.

A tough message perhaps, but one that gets to the important point of why driving performance and accountability through feedback (which includes constructive criticism as well as positive reinforcement) is absolutely key to pursuing a tax-exempt mission.

Performance Accountability a Must at Nonprofits

A terrific post Dear Executive Director, Please Fire Your Staff on the GiveWell blog begins with this inarguable truth: "It is important that everyone involved in a nonprofit's mission be accountable."  The author further states, based on his experience, regarding the most striking difference between the nonprofit organizations and the for-profit sector, that "nonprofits are much worse at doing internal evaluation of personnel, and most of the time it barely happens at all."

Why should this be true?

While there are many exceptions to every rule -- I do know nonprofits that are working hard to effectively manage employee performance and I also know of for-profit businesses that do a crappy job of this -- I believe there is also a kernel of truth here.  Performance management, which has at its heart the act of holding people accountable for producing good work results, is something with which many nonprofits struggle.  Some feel the process runs at odds with their mission, culture and values, while others balk at the necessity of having to act "like a business".  Many nonprofits understand the importance of performance management at the Board and leadership level, but encounter difficulty in implementing and sustaining these practices throughout the organization. 

The simple truth is that nonprofits must be accountable for using their resources well and wisely.  They owe it to the clients they serve, and they owe it to their funders (whether they be the public at large or private donors) to do so.  And this means proactively and assertively managing the performance of what is likely their largest and most costly asset:  their employees.   

Free NFP Surveys Available for NYC and Washington DC

Professionals for Nonprofits (PNP), a staffing firm serving the nonprofit sector, has published nonprofit salary surveys covering New York City and Washington D.C.  The surveys, which appear to have been conducted with a more appropriate methodology than most done by search firms, are available to download free of charge from PNP's web site.

IRS Enforcement of Intermediate Sanctions Regs for NFPs (Section 4958) Paying Off

Dan Prives, author of the Where Most Needed blog on charities reports in yesterday's post that (according to the New York Times) the IRS has collected excise tax penalties for excessive compensation from forty individuals to the tune of $20 million. (See earlier post on Intermediate Sanctions regulations for more on this law and the reason for these penalties, and see IRS Report on Exempt Organization Executive Compensation for more details on the enforcement effort that resulted in these penalties.)

Prives also takes the IRS to task - rightly so, I believe - for the structure of Form 990 (where charities publicly disclose financial information including compensation to top officers) which makes it difficult to track and compare what nonprofits are doing in terms of executive compensation.  He suggests another model, more along the lines of the proxy statements issued by public companies, which provide not only a summary of compensation for top executives (versus the incoherent bits and pieces scattered throughout the current Form 990) but also describes the process by which compensation was determined.

I applaud this proposal and hope that it gains traction.  Unless it does, donors and the rest of the general public will continue to base their appraisals of this aspect of a charity's financial stewardship using partial and inconclusive information.

'Dumpster Diving" for Nonprofit Pay Information on Guidestar

Alex Beam, columnist for the Boston Globe, has written a useful and amusing article (Spying for Fun and Nonprofits) on digging for nonprofit salaries and other information on Guidestar, a Williamsburg, Virginia-based website that posts all of the IRS filings of the nation's nonprofits.  He shares a few of the tidbits he has gleaned in his research, which he refers to as "digital dumpster diving", from NPR newsreader salaries to a recent announcement posted by Britney Spears' foundation.

But seriously, if you don't already know about Guidestar as a resource for nonprofit executive compensation data, be sure and note the website for future reference.

On Executive Incentives in Nonprofits

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.

Gender Pay Gap for Executives Appears to Narrow, At Least Among Nonprofits

For the fifth year in a row, female chief executives of nonprofit organizations earned less than their male counterparts, but the gap appears to be narrowing according to the 2006 Nonprofit Compensation Report just issued by Guidestar. 

The median compensation of a male chief executive in 2005 was 25.6% higher than the pay for females in similar positions; however, that difference is notably less than it was in 2000 when the pay gap was 45.7%.

Guidestar hypothesizes that part of the pay difference can be attributed to the fact that female executives appear to be more typically found at smaller organizations (women account for 57% of the top executives at organizations with budgets of $1 million or less, but only 36% at larger organizations).  It is true that compensation for executives (and this holds for the for-profit world as well) does tend to be closely linked to organization size and scope. 

Learn more about the Guidestar survey here.