As nonprofit organizations continue their efforts to do more – and better – with less, an increasing number are turning to incentive compensation as a tool to motivate and reward their employees for higher levels of performance.
When well-designed and well-implemented, incentive plans can produce real benefits for an organization, regardless of their profit status. Consider the following tips when looking at incentive compensation for your noprofit – or when reviewing a current incentive plan to improve its results.
Establish clear, focused objectives. Incentive plans tend to be most successful when organizations articulate (and document) exactly what they hope the plan will accomplish, and how they will measure whether or not it gets there. Incentive plans with fuzzy, uncertain objectives invariably produce fuzzy, uncertain results.
Solicit participation in plan design. Avoid having one or two people in the organization design the plan alone. The most effective incentive plans tend to be those designed by a group of people who represent different parts of the organization and who bring varied perspectives to the table.
Seek balance in performance measures. This is true for all organizations, but particularly true for nonprofits. While financial performance is certainly key to the success of any nonprofit organization, resist the temptation to focus an incentive plan solely on a financial measure such as revenues. Rewarding nonprofit employees directly for achieving financial results risks the appearance of private inurement. Rewarding executives solely for financial performance, especially those considered "disqualified" under IRS Section 4958 (Intermediate Sanctions Law), can lead to substantial penalties, up to and including the withdrawal of tax-exempt status. The measures used to reward employees (the typical plan will have two or three) should reflect other aspects of accomplishing the organization’s tax-exempt mission in addition to financial success.
Communicate, educate and celebrate. Research in employee rewards tells us that organizations can accomplish a lot with limited incentive dollars if they are diligent in communication. On the front end, be sure that employees understand why the plan was put in place, how it works, and what they can do to impact the performance measures on which their incentive award will depend. Do this in face-to-face meetings, if possible. Then, when they achieve success (or even when they hit important milestones on their way to success), celebrate the results!