This presentation from Rutgers Business School's 2010 Nonprofit Leadership Certificate program, offers emerging nonprofit leaders an overview of compensation practices and trends in the nonprofit sector. The presentation begins with a brief overview of executive compensation, followed by explorations of the past, present, and future of nonprofit pay, and closes with a primer on pay for performance approaches.

1. Compensation in the Nonprofit Sector
2010 Nonprofit Executive & Emerging Leaders Certificate Program
Emerging Leaders Track
November 3, 2010
Joe Brown
sloperesources.com
Wait, They Pay People?
SOME RIGHTS RESERVED

2.  Founded Slope Resources in 1998
 Human resources and organization management
consulting services for nonprofits
 Compensation and performance management
 “Big firm” background
 Blog: Done by People
Who am I?

3.  Executive pay
 Where have we been?
 Where are we now?
 What’s next?
 Pay for performance
 Questions and discussion
This afternoon…

4. Executive pay

5.  Increasing scrutiny of nonprofit executive
compensation
 Government
 Media
 Public
Executive pay

6.  Internal Revenue Service serves as nonprofit fiscal
watchdog
 Organization’s tax-exempt status is at stake
 Intermediate sanctions – executives and board
members personally liable
 IRS strengthening enforcement – 155 new
employees focused on nonprofits in 2009
 Organizations can establish rebuttable
presumption that their executive compensation is
reasonable
Executive pay

7.  IRS Form 990 – Return of Organization Exempt from
Income Tax
 2008: Redesigned to enhance transparency,
promote compliance, reduce filing burden
 2009: Further changes and clarifications
Executive pay

8. Executive pay

9. Executive pay

10.  27% of nonprofit organizations have no formal
executive compensation policy!
 Schedule J provides a blueprint:
 Board compensation committee
 Independent compensation consultant
 Other organizations’ Form 990s
 Written employee contract
 Compensation surveys/studies
Executive pay

11. …versus employee pay

12. A bit of philosophy…
“This is not charity. This is business.
Business with a social objective…”
--Muhammad Yunus

13. …leads to three principles
 Market
 Equity
 Performance

14. Where we have been?
 Nonprofit compensation has traditionally lagged
behind for-profit sector
 But difference varies by level
Nonprofit
For-profit
Job "size"
Totalcompensation

15. Where we have been?
 Nonprofit compensation has traditionally lagged
behind for-profit sector
 Difference also varies by function
 Market comes into play
 “Nonprofit” jobs versus “regular” jobs
 e.g. development, program vs. IT, finance
 Differences even within “nonprofit” jobs
 e.g. direct service vs. program development

16. Where we have been?
 Year-to-year salary increases have generally
tracked for-profit practices
 “Four percent world”
 But, increases have tended to be more
homogenous
 Across-the-board, COLA
 Rather than performance-based
 Entitlement mentality

17. Where we have been?
 S l o w shift to performance-based (“merit”) pay
 Pay levels, increases, staffing levels, even job
titles often limited by grant budgets, etc.

18. Where we have been?
 Bonuses Incentive compensation
 Prevalent but limited
 For many organizations, not the answer
 Perception, complexity, ROI
 Instead…

19. Where we have been?
 Bonuses Incentive compensation
 Prevalent but limited
 For many organizations, not the answer
 Perception, complexity, ROI
 Instead…
 Get the basics right!

20. Where are we now?
“It’s the economy, stupid.”
--Bill Clinton, 1992

21.  Well-documented (and experienced) impacts
 Decreased funding from all sources
 Closures
 Layoffs, furloughs, salary freezes, salary cuts
Where are we now?
?
How many of your
organizations have not
experienced any of these in
the last three years?

22.  All compensation growth limited
 Now a “zero to two or three percent world”
 More difficult to offer “rich” benefits
 Greater differences in demand within nonprofit
sector
 e.g., development vs. program
Where are we now?

23.  Greater access to general market talent
 e.g., IT positions
 Caveat emptor!
 Increased demand for performance and
accountability
 Funders, public
 Emphasis on evaluation and measurement
 Has to translate to employee performance!
Where are we now?

24.  Increasing need to compete for talent
 Most bang for the buck
 Labor shortage (!)
 New sectors
 e.g., social enterprise, B-corporations
What’s next?

25.  Generational forces
 Demand for competitive – or at least living –
wages
 Shifting benefit needs/desires
What’s next?

26.  Public, government, and funder scrutiny
 May spread to non-executive levels
 Increased compression
 Also, focus on low end
 Increasing professionalization of nonprofit sector
What’s next?

27.  Increased recognition of the need for broader
organizational support
 “Administrative”, “overhead”, “indirect costs”
and organization development
 GAO report recognized differences in federal
grants
 Growing recognition and support in
philanthropic community
What’s next?

28. Building blocks
Reward
opportunity
Compensation program
Internal equity
Market competitiveness
Performance management program
Individual/team contribution
Base salary
Incentive compensation$Actual
rewards
Performance

29.  Performance management program should focus
on:
 What: job responsibilities, goals
 How: competencies, expectations
 “Management” – not “evaluation” or “rating”
 Communication – not the form!
Pay for performance

30. Pay for performance
 Compensation program development:
 Communication and input
 Job descriptions
 Grouping/grades
 Internal equity
assessment $0
$20
$40
$60
$80
$100
Job Size
Compensation

31. Pay for performance
 Compensation program development (continued)
 Market competitiveness assessment
 Compensation philosophy development
 Salary policy (e.g., median of metro
organizations with budgets under $10 million)

32. Pay for performance
 Compensation program development (continued)
 Salary ranges
Minimum
(80%)
Maximum
(120%)
Midpoint
(100%)
Performance over time
Low HighAverage
Hiring range

33. Pay for performance
 Compensation program development (continued)
 Salary administration guidelines
 Implementation
 Communication

34. Pay for performance

35. …and beyond
Strategic
planning
Non-cash
rewards
Professional
development
Career
development
Succession
planning

36. Questions and discussion

37. Joe Brown
jbrown@sloperesources.com
908 241-8592
sloperesources.com
twitter.com/joe_brown
Thank you!