Competitive compensation goes beyond straight salaryPeople who apply to work for your nonprofit may not be willing to accept low pay in return for simply joining a mission-driven organization. Better-paying "green" businesses and socially driven for-profit companies offer that possibility as well. To find qualified employees and keep them on staff, offer the most competitive compensation that your budget allows. Some criticism of highly paid charity jobs continues, but it's increasingly recognized within the sector that professionalism doesn't have to conflict with public service values — and that includes appropriate pay.
But how do you find what's appropriate?
Create a compensation philosophy
To get started, consider what's most important to your organization in terms of employee compensation. Is it competing favorably with comparable for-profit enterprises? Is it emphasizing fairness — paying the same wages for the same jobs, even for employees located in different areas? Or perhaps demonstrating your values by paying a living wage? These are just a few options.
As you develop your thinking, take into account the following principles on good pay from the U.K.-based Association of Chief Executives of Voluntary Organisations (ACEVO):
Transparency is essential for public trust. It involves clear, frequent communication with all stakeholders — with boards and senior management driving an organizational culture of openness. Transparency on pay might include publishing (and making easily accessible) the procedures for setting pay, executive salaries or salary bands, and the ratio between highest and lowest pay in the organization.
This can be calculated by how an individual's pay stacks up against three benchmarks: colleagues within the same organization, similar roles in the same sector and similar roles in comparable sectors (for example, those working for public sector bodies in government or education).
Compensation should be in line with performance, which is best tracked through regular, formal appraisals.
Recruitment and retention
Avoid excessive staff turnover by reviewing your full offer: not just pay, but also shared values and additional opportunities (for example, for professional development).
ACEVO recommends establishing a remuneration committee within the board to decide executive-level pay and to delegate decisions on other staff compensation.
With these principles in mind, you can set out your compensation philosophy in a board-reviewed policy that's openly shared with employees and applicants. Include information on the data you'll gather to set salary ranges, and how often you'll review salary ranges.
Find out what comparable organizations are paying
When hiring, you have many ways to learn the going rate for the job you want to fill. Examples include:
- Classified ads
- Online salary or compensation assessment sites (such as erieri.com and Salary.com)
- In the U.S., your state's association of nonprofits or the National Compensation Survey from the Bureau of Labor Statistics
- In the U.K., annual salary surveys from specialist nonprofit recruiters (such as TPP Recruitment)
You can also directly ask area nonprofits with a similar mission and budget. Assure them that you'll keep compensation information confidential.
Include more than salary
Salary is just one part of a compensation package. Many other perks can align with an employee's goals. One example is access to professional training: a global survey of 120,000 workers in 2013 found that 60 percent were considering or actively seeking further training and development. Other possibilities include:
- Flexible work schedule and working location
- Health insurance benefits
- Employer contributions to retirement savings plans
- Insurance policies, including pet insurance
- Paid vacations
- Paid family leave
- Paid days for volunteer work
- Tuition reimbursement
- Inexpensive day care options for children
While many for-profit companies offer bonuses and commissions, these aren't usually an option in the nonprofit world. In the U.S., such "nonlinear compensation" in nonprofits is a red flag for the IRS — so review the regulations carefully if you're considering this. Also make it clear to employees that variable compensation above a base salary is only for exceptional performance. It's not automatic.
Pay special attention to executive compensation
Charitable organizations are expected to provide reasonable salaries for employees at all levels — and given the significant public attention on nonprofit executive salaries, it's something well worth getting right.
There's no single process to follow when deciding how to pay executives, and the huge range of organizations means there are no guideline figures. ACEVO research from 2013/14 found that the median CEO salary in the U.K. was £34,600 for charities turning over less than £150,000 a year, but that shot up to more than £100,000 for those with an annual revenue of £25 to 50 million.
As a guideline, compensation is generally considered reasonable when:
- Approved in advance by an authorized body of people without conflicts of interest
- Adequately documented (and ideally, shared)
- Based on appropriate data about compensation for comparable positions in similar organizations
Create a compensation structure
A compensation structure translates your compensation philosophy into a cash equivalent. This structure states the salary ranges and benefits for all staff positions. Include detailed job descriptions, required levels of education and experience, and schedules for salary adjustments (usually annual).
Also document the process used to create your compensation structure. Describe the data you used and who was involved in these decisions, as well as when the compensation structure was created and how often it'll be reviewed and updated.
Your board may want to approve this structure, even for employees below executive levels.
Understand employee desires and interests
Workers in different generations have varying desires and interests when it comes to benefits. For example, younger workers tend to worry most about student debt, job flexibility and professional advancement, while older workers may be wrangling with mortgages, looming college costs for their children, pension worries and the cost of caring for ailing parents. As much as possible, offer perks and benefits that appeal to your most common employee interests and needs.
If you're not sure which benefits would mean the most to your employees, ask them. An employee survey may provide valuable information that can then be incorporated into your organization's compensation package.
With salaries that are often lower than in other sectors, ACEVO advises that a nonprofit's values can be the trump card in both recruitment and retention. Look for new hires whose personal values align with your organization's and communicate shared values on an everyday basis to maximize staff retention.
Sell your compensation philosophy and structure when hiring
Put yourself in the place of an applicant who's weighing job offers from your nonprofit and comparable organizations. What features of your work environment make a compelling argument for coming to work with you? Examples might include:
- Competitive benefits
- Recognition for exceptional performance
- Work-life balance
- A visible career path with opportunities for advancement
Well-designed compensation packages take effort and require ongoing maintenance, including annual review and approval by the board. It's worth it. The benefits include hiring and retaining people with the talent needed to advance your mission and achieve your vision.