August 25, 2011
Setting compensation in nonprofits is tough these days. You need to attract and retain staff, managers, and executives, working within a tight—maybe even shrinking—budget and also projecting what will happen next year. Finally, prepare to explain (and perhaps defend) your actions as other stakeholders—funders, donors, media, members of the public, even clients and staff members—weigh in.
When revenues are down and prospects for increasing or even continuing support from foundations, government, and individuals are not bright, nonprofits have to make some tough decisions about how to spend their scarce dollars. Typically, salaries represent well over 50 percent of an organization’s budget, so compensation mistakes can be costly. In addition to the monetary consequences, nonprofits that make such errors stand to lose valuable staff, waste important resources, and, in the worst scenario, forfeit their credibility within their communities.
There are a few basic concepts to keep in mind about compensation in the nonprofit sector:
- What you need to pay is dependent on the labor market for the job.
For example, a nonprofit hospital seeking a CEO has to compete for talent with for-profit and government hospitals, and the search could be statewide or nationwide. On the other hand, a small human services nonprofit may be looking for an executive director with experience in other human services nonprofits; typically, the smaller the size of the recruiting organization, the more local the search.
- Size of the organization is important for executive jobs.
Compensation for management-level staff tends to rise with revenues and assets, whether the company is nonprofit or for-profit. The logic is that the decisions that managers of larger organizations make affect more dollars, more revenue, more clients, etc., and they should be paid more to make them. Generally this philosophy is reflected in the marketplace.
- For non-management jobs, the crucial factor in the pay level is years of experience, rather than size of organization.
For example, if a company doubles in size, the director of accounting (management) may get a raise, but someone who is a bookkeeper probably won’t—an additional bookkeeper will be hired to do the extra work. So pay for the lower-level job tends to be based on how much experience the job requires or how much experience the incumbent has.
- For non-management jobs, it is less likely that specific nonprofit experience is necessary. For example, when looking for a receptionist, the desired qualities are friendliness, good organizational skills, etc.—similar experience in a company or government agency would be relevant.