Compensation in the Nonprofit Context

Transcription

1 Compensation in the Nonprofit Context Jan Masaoka Publisher, Blue Avocado CEO, California Association of Nonprofits 1

2 Online magazine for nonprofits New issue every 3 weeks "Ask Rita in HR" column Practical, fun, provocative 2

3 Outline 1. HR and the nonprofit sector 2. Relevant, distinct characteristics of nonprofits 3. Goals of compensation strategies 4. Setting, benchmarking, & charting salaries 5. Non-salary components of compensation * Incentive pay: bonuses & commissions 6. Minimum wage and relevant nonprofit exceptions 7. Executive compensation 8. The board's role in compensation 9. Seven compensation problems especially common in nonprofits 3

4 Two myths about nonprofits & compensation Myth #1: Nonprofits overpay and have excessive compensation (and that person is getting paid too much)

5 Myth #2: Nonprofits pay nothing or almost nothing (and I'm not getting paid enough)

6 Where did HR mainly develop? Developed in large companies Many people doing the same job Sharp distinctions between management and less-educated workers Workplaces supervised by men Compensation strategy: pay as little as possible to maximize profit

7 Henry Ford: "Why do workers bring their heads to work when all I need is their hands and feet?"

8 Conventional HR and the nonprofit context Conventional HR Developed for large companies Many people doing the same job No volunteers Workplaces often dominated by men Supervisor/subordinate is dominant relationship Compensation strategies have increased performance and profit as central goal Company is ultimately profit-driven Most nonprofits 96% < 100 staff Many unique positions Many volunteers Workplaces 2/3 women Work in teams is dominant relationship Compensation strategies often include values-based goals Organization is ultimately missiondriven

9 Why is compensation important (for leadership to pay attention to)? Often 60% - 80% of budget Crucial to recruiting, retaining, motivating staff Overpaying can also lead to problems Articulating a strategy is helpful to staff 9

10 What are the goals of a compensation strategy? To support the staffing strategy Attract the best talent Retain and motivate the best employees Maintain appropriate internal equity Not so far above market that no one leaves (appropriate turnover) To signal commitment to values & mission To be financially sustainable To train staff for the greater cause (probably at other organizations) 10

11 Compensation components For-profits Nonprofits Salaries X X Benefits X X Bonuses X x Commissions X x Ownership shares Non-financial benefits X X X 11

12 Constraints on compensation FLSA (Fair Labor Standards Act) Anti-discrimination laws State & local laws Limits on compensation of top executives Government contract specifications Foundation grant specifications Public perceptions (and perceptions of public perceptions) 12

13 Establishing a salary range for a particular position 13

14 Mapping compensation Group positions with similar characteristics into categories 2. Establish a range for each group 14

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18 Positions within ranges as %s 18

19 Bonuses Extra pay due to good performance of individual, department, company, or a combination For-profit example: At the end of the year a company looks at its profits and takes 50% for a "bonus pool," which it then divides among employees based on performance and/or partners based on ownership shares. Nonprofit example: Bonuses are established based on targets, and if those are met, distributed after the end of the year.

20 Established in advance Stated in numerical (not percentage) terms Include mission-related criteria (not just financial)

21 Ok and not-ok bonus language The development director will be eligible for a bonus at the end of the fiscal year based on performance Not permissible. No objective benchmarks or criteria to measure performance If the organization finishes the fiscal year with a $50,000 or more surplus, the executive director will be awarded a bonus of 12% of the surplus. Not permissible. Bonuses can't be based on a percentage of surplus. If unrestricted cash gifts from individuals are $350,000 or more, and the organization has a surplus of $100,000 or more, and engagement goals for major donors are met, the development director will be awarded a payment of $45,000 upon completion of the audit. Permissible.

22 Do salary incentives "work"? Research is divided Studies show that when tasks require creativity, problem solving and concentration, financial incentives result in worse performance Large Stakes & Big Mistakes, Federal Reserve Bank of Boston

23 Bonus guidelines summarized "Spot bonuses" (modest gifts) okay (not subject bonus rules) Must be established in advance Must be numerical (not percentages) Criteria must have mission component Rules still evolving Take public and internal perceptions into account

24 Commission payments Person paid "on straight commission" must still earn minimum wage Pay per signature laws are changing Restrictions in gov't and foundation contracts and grants The fundraising commission controversy Take community and donor perceptions into account

25 AFP on commissions for fundraising Association of Fundraising Professionals (AFP) Code of Ethics: "Members shall not accept compensation or enter into a contract that is based on a percentage of contributions; nor shall members accept finder's fees or contingent fees."

26 Minimum wage/exempt vs. non-exempt Federal and state laws on minimum wage Exempt vs. non-exempt

27 Exceptions to minimum wage People with disabilities and sheltered workshops Government-paid "volunteers" (example: VISTAs) Interns Staff-in-residence Younger workers

28 Types of benefits Payroll-related benefits (payroll taxes, state disability insurance in some states, workers compensation). Note: exempt from FUTA Health, EAPs, dental, vision, HSAs (Health Savings Accounts), life insurance Time off, holidays, sick pay/vacation/pto, paid and unpaid sabbaticals Retirement benefits Education and training benefits Non-economic benefits

29 Non-financial benefits Flex time Comp time Alternative work weeks Tele-working (telecommuting) Job sharing Pets at work Discounts and perks Unique experiences

30 Total compensation The invisible paycheck

31 "Excess compensation" Principle: prevent people from awarding unreasonably high compensation to themselves Federal law prohibits "excess compensation" or "excess benefit" "Reasonable compensation:" "An amount as would ordinarily be paid for like services by like enterprises under like circumstances" With an employee who is "in a position to exercise substantial influence" over the affairs of the organization Fines & penalties for organization and individual Keep an eye out for changing state laws See Instructions for Form 990 on IRS website for complete language

32 Looking for comparable comp Guidestar.org for $100K + salaries Informal survey among nearby organizations (pretty easily done by a third party) Executive compensation consultants (and law firms)

33 The board's role in HR Oversight is necessary & appropriate Lines of authority over staff are also necessary & appropriate

34 Board oversight steps 1. Executive director/ceo salary 2. In some cases: other senior staff (artistic director/managing director, CFO) 3. Review and approve salary ranges 4. Annual check to see that every salary is within its range 5. Review/approval of employee manual, including benefits packages 6. Grievance procedure ends at the board 7. Whistleblower/serious concerns about senior management: bring to the attention of the board chair

35 Seven compensation problems especially common in nonprofits

36 Problem #1: Compressed salaries ED

37 Problem #2: Too large a gap immediately below ED

38 Problem #3: HQ staff paid more than branch office staff

39 Problem #4: Support staff who report to management team members make more than comparable positions that report to others

40 Problem #5: Misunderstanding COLA TWO meanings for Cost-of-Living-Adjustment (COLA): 1. Adjustment based on different costs of living in different geographic areas

41 Problem #5: Misunderstanding COLA TWO meanings for Cost-of-Living-Adjustment (COLA): 1. Adjustment based on different costs of living in different geographic areas 2. Annual increase tied to inflation rate NO Yes with caution

42 Problem #6: Mistaken focus on %, not $ "Let's give everyone a 3% raise... that's fair." COO Patient Assistant Before $120,000 $40,000 After $123,600 $41,200

43 Problem #7: Failing to take "total contribution" into account Examples: Accomplishments outside of job description (accountant bringing in a corporate contribution, or an administrative assistant recruiting volunteers) Internal organization building (contributing to work life, adding an important voice well, strengthening others, a voice against whining, fostering appreciation for multiple cultures) External organization building (organizational reputation and profile, partnership development)

44 Seven compensation problems especially common in nonprofits 1. Compressed salaries 2. Overly large gap between ED and others 3. Headquarters staff paid more than branch staff 4. Support staff who report to management team members paid more than comparable positions that report elsewhere 5. Misunderstandings about COLAs 6. Mistaken focus on percentages, not dollars 7. Failure to take "total contribution" into account

45 BlueAvocado.org HR articles Preferential hiring for people with disabilities Can we require an employee to take her meds? Managing liability with underage volunteers Managing within the immigration and employment laws Can an employee smoke prescribed marijuana at work? to subscribe: send to 45