Mission vs. money: Compensation often comes second. (NCNE Conference).
"The kind of workers attracted to nonprofit organizations and the type of workers nonprofit organizations want to attract are probably motivated by values other than money," said Anne Preston, an economics professor at Haverford College in Haverford, Pa.
Preston presented part of a report on compensation in nonprofit organizations during the National Center on Nonprofit Enterprise's (NCNE) inaugural conference during January in Washington, D.C.
Preston, whose research focus is on labor markets in nonprofit organizations, was one of eight experts contributing to the report.
Overall findings revolve around nonprofits' ability to attract, retain and motivate employees. It's essential for nonprofits to attract the right number and type of employees with appropriate skills, experience and values that match an organization's needs, Preston said.
For example, 70 percent of the nonprofit workforce is female compared with the for-profit workforce, which is about 40 percent female, Preston said. Some 48 percent of nonprofit workers earned a college or postgraduate degree -- about double that of for-profit workers. An estimated 65 percent of nonprofit employees are professionals, meaning their occupation is a professional occupation or they have taken educational classes that gave them professional skills. Again that's about double the percentage in the for-profit sector, she said.
Most tellingly, nonprofit employees earn 10 to 15 percent less than comparable (in terms of education and occupation) for-profit workers do.
"We have a highly educated workforce who's choosing to work in jobs, which we know pay less," Preston said. "I think that means that there must be other motivations driving the behavior of these individuals."
But even if nonprofit workers aren't driven by money alone, an organization still has to give competitive compensation.
"Salaries have to be in the ballpark of the salaries of your competition," Preston said. "Salaries may not be the factor that attracts employees to your organization, but it does have the power to turn them away."
An organization must know its competition, and what its competition is willing to pay similar workers, before it can successfully attract employees. Competition for workers causes salaries to vary.
This is where aptitude at creating non-monetary perks comes into play. Perks can be as simple as offering flexibility such as telecommuting, generous vacation schedules or working from home part time, said Cheryl Young, human resources director for NBC's Television Stations Division and contributor to the report.
Other examples are access to medical personnel and arts programs, tuition reimbursement programs, or earlier management opportunities than are available in the for-profit sector, Young said.
Nonprofits workers also receive intangible perks such as making a difference, feeling good about their job, and a commitment to a mission, said Tom McKenna, research associate with the University of Pennsylvania in Philadelphia and a report contributor.
An organization searching for employees must create compensation packages that attract workers. Ideally, the package has characteristics that cost the organization less than the value people place on them, Preston said.
Pay-for-performance programs are gaining popularity in the sector. Such programs have potential because they also monitor workers. But awarding appropriate accomplishments is important. Rewarded behaviors and resulting outcomes should reflect the organization's goals but still identify incentives that employees' value.
"You have to sell the future and you have to create line of sight," said Myron Roomkin, dean at American University's Kogod School of Business in Washington, D.C., and a report contributor.
Selling the future establishes a future payoff for performing now, and carries an inherent risk -- that payment isn't guaranteed, Roomkin said. Line of sight assures employees that today's efforts will result in that payoff tomorrow.
After finding the right employees, organizations can cut recruitment hiring and training costs by keeping good workers.
One way to retain workers is deferred compensation, so "employees have to stick around to get the benefits," Preston said.
But a balance between current and deferred compensation is necessary -- especially if an organization relies on older workers, who may not join organizations if they don't have the time to enjoy deferred benefits. This wipes out a potentially vital part of an organization's employee base.
Differences between the nonprofit and for-profit sector also influence compensation. Because of intermediate sanctions, nonprofit employees have a salary ceiling.
Still, pay-for-performance is legal if the compensation limits a person s earnings and is based on similar salaries in the nonprofit or for-profit sector.
Other characteristics that set nonprofits apart from for-profits when considering compensation are:
* Nonprofits lack owners. As a result, the characteristics and experiences of board members, who make high-level organizational decisions, affect salaries;
* By law 501 (c)(3) and (c)(4) organizations have to contribute to the common good to become tax-exempt. Therefore, public opinion may influence compensation;
* Nonprofits raise money through donations. So, donors may influence salary decisions by altering personal giving habits. This could happen, for example, if donors are unsatisfied with salaries.
But success at hiring, motivating and keeping valuable workers goes beyond an organization's ability to offer good compensation packages.
Said Roomkin: "When we talk about the role of compensation to motivate employees ... the general impression is if you have to use your compensation system to motivate employees you have the wrong employees."