Compensation Trends in the Nonprofit World

Tuesday, September 30, at 12 noon, U.S. Eastern time

Chuck McLean is vice president for research at GuideStar, where he has compiled the organization's comprehensive survey on nonprofit compensation for the past eight years. GuideStar collects its data from the tax forms filed annually by charities with the Internal Revenue Service.

Susan Egmont is president of Egmont Associates, an executive recruiting firm for charities in Boston.

A transcript of the chat follows.

    Welcome to today's live discussion. Today we're talking about an issue that is important to all of us -- salaries. While money isn't a prime motivator for many who work in the charity world, compensation is nonetheless an important factor. How can you make sure you're getting paid what you are worth? What can charities do to attract the best possible talent? And what are some current trends? We'll cover these and other questions over the next hour.

    To ask a question of one of our guest experts, please click on the "ask a question" link on this page and type your query. Thanks for joining us.

Question from Joe Brown, Slope Resources (consultant):
    Have you observed any prevalence or trend towards the compensation of nonprofit executives that specifically targets and/or is linked to longer-term performance, say 3 to 5 years, rather than the annual performance time frame that is typically the focus of salary increases and variable pay? If so, what type of approaches, mechanisms, and/or linkages have you observed?

Susan Egmont:
    No. Many nonprofits are still catching up to the for-profit trend of including compensation for performance in letters of agreement at all. I would say that at least half don't do this at all. Often when there's a change of executives, boards are anxious about year one. Those who do contract for pay-for-performance generally set up an annual mechanism for setting goals and evaluating achievement.

Question from Peter Panepento, Moderator:
    Hi Chuck. There has been a persistent gap in the salaries paid to women and men in the nonprofit world. Is there any evidence that this gap is narrowing? And, if there is a change, how is it playing out?

Chuck McLean:
    One of the most surprising things to me when I started doing the GuideStar Compensation Report was that there was such a gap between men and women. I thought it would be different in the NPO sector. There is definitely a gap, but we see it narrowing slowly but surely. Still, though, women are not finding it easy to get into the CEO office at very large charities.

Question from Ann, nonprofit program staff:
    Several in our organization have unintentionally learned of some pretty serious inequities in employee pay. A few of us have asked our human resource/finance department to clarify policies around employee pay. In response, we learned there are four categories into which we all fit. However, when we asked for the salary ranges corresponding to these categories, we were told that was inappropriate. I don't think anyone wants to know what individual employees earn, but I do believe we each want to have a sense of where we fall among our group of peers. The culture of secrecy is brewing animosity and effecting morale. What can we do?

Susan Egmont:
    I'd be curious to know how many employees are in your organization and the field in which you work. If you are part of a large organization (such as a hospital or university), you may want to talk with the HR department of the organization rather than your department. I suspect, however, that this is a smaller organization.

I'm also curious about the concept of equity -- do you mean equality? Fairness? Are there multiple employees with the same job descriptions? Do you have an annual goal setting process and then an evaluation process which is linked to salary determination?

It would benefit your employer to share the process by which salaries are determined as a first step. I expect there will be suspicion if there doesn't seem to be any process in place. Approaching these questions with a spirit of collegiality will of course make answers easier to get.

Question from Pat Dudley, Foundation Fighting Blindness:
    What percent of non-profits offer a bonus program to Executive management? Do you see a trend toward more long term incentive and less emphasis on base salary?

Chuck McLean:
    I am unable to address this with Form 990 data, so I don't think anyone knows a percentage. However, it seems to me that the model that many nonprofits are being forced into is increasingly similar to for-profits, which definitely means a trend toward bonus structures.

Peter Panepento (Moderator):
    The Chronicle's latest compensation survey, which came out on Monday, has some data on the bonus issue. Of the 291 organizations we surveyed, 38 paid bonuses to their chief executives. The median bonus grew from $45,000 in 2006 to $55,000 in 2007.

Peter Panepento (Moderator):
    A full list of those bonuses is available here:

http://philanthropy.com/free/articles/v20/i24/24000601.htm#bonuses

Question from Hsien Hong Lin (Joe), Taiwanese, Kent State University:
    Good day to everybody, especially to Mr. Mclean and Ms. Egmont. I have a question about a salary trend that charity CEO compensations are increasing annually from 2006 through 2008. Can you tell us what reasons or factors make the phenomena happen in increasing salary for charity CEO? As a donor, how to watch the relation between a CEO and a charity organization?

Susan Egmont:
    CEO salary increases may be based on many factors including cost of living increases, pay-for-performance or standard merit increases. Of course, boards should be working with the CEO to set annual goals and then following through with a careful evaluation. Unfortunately, sometimes compensation is less carefully determined. As Sarbanes-Oxley is beginning to affect nonprofit practices, careful boards are surveying like-organizations and like-positions so they can justify their decisions, both to the IRS, the community and donors. Donors can remain familiar with community standards by talking with board chairs of organizations they fund and by reviewing the organizations' 990 returns on Guidestar.

Question from Peter Panepento:
    What types of positions are seeing the biggest changes in terms of compensation?

Chuck McLean:
    CEOs still make the big bucks, and get the big raises. However, technology is becoming an ever more important part of many nonprofits, especially large nonprofits, and it is hard to attract talent in those areas without paying market salaries with attractive benefit programs.

Question from John F., Large L.A. Based Nonprofit:
    I'm going to take a question directly from the descrption.... What strategies can you use to make sure you're getting the best possible deal from your employer?

Susan Egmont:
    Know what the standards are in your industry and in your community. Stay current by asking colleagues and reviewing 990's on Guidestar. Make sure you are setting annual goals and reviewing them with your employer (that is emerging as my theme today!), and then ask for a regular and timely review of your achievements. Be sure you are aware of the financial circumstances of your organization and manage the timing of any requests. If it is are primarily state-funded and state budget cuts have just been announced, that's not a great time to ask for an increase! Regarding benefits, a regular review by the HR officer to be sure competitive bids are taken by the organization can sometimes allow for adding a new benefit without increasing costs while being sure the benefits offered are of value to the employees. Finally, an attitude of service and going beyond the call of duty will establish you as an employee the employer will want to keep.

Question from Peter Panepento:
    Chuck, I'm curious to hear what the new IRS Form 990 will mean to you in terms of how compensation is reported. What will you be able to track with the new form that you aren't able to measure now?

Chuck McLean:
    Well, first of all, it will be easier to understand the role that someone plays in an organization because of the way positions must be classified on the new form. Second, it will be easier to understand the compensation that an officer receives from related organizations. In the past, especially for complex healthcare or educational organizations, it could be pretty hard to tell who was paying what to their officers. Finally, it will make it easier, at least for highly compensated key employees to get at some of the issues raised by participants today, such as base salary versus bonuses and incentives.

Peter Panepento (Moderator):
    We've hit the halfway point in today's discussion. I'd like to take this opportunity to invite you to submit your questions to our guests. Simply click on the "ask a question" link to join the conversation. You are also welcome to share comments on anything you see here by using the same tool. Thanks.

Question from D. Daniel, VP, HR , ICRW:
    Do you know if alternative compensation approaches are being considered by NFPs this year? (e.g., lump sum payments vs. merit increases)

Susan Egmont:
    For CEOs? I haven't seen these options offered in recent memory although a signing bonus or relocation support may be given in the first year. Public review of executive salaries and benefits is increasing (as it should) and special arrangements with CEOs will attract scrutiny. Deferred compensation and benefits such as car leases, club memberships, tuition reimbursement, or time off for consulting are not unusual. Different retirements benefits from other staff and low-or-no interest loans may not be legal or at a minimum good practice.

Question from Joe Brown, Slope Resources (consultant):
    Following up on the question and answer regarding pay-for-performance... Among those organizations which do provide performance-based compensation to nonprofit executives, do you have a sense of what specific measures are typically utilized? Also, any particular insight on how the prevalence of performance-based pay might vary across non-profit sectors or even across executive job functions?

Susan Egmont:
    Tying pay to performance in resource development can violate standards of ethics. To protect the spirit of philanthropy - that fundraisers should act in the best interest of the donor, not to be sure to get their bonus - I would advise against setting a monetary goal for fundraising and connecting salary to that. Many other measures would be appropriate. A few examples are increasing retention of key staff, building the board in an appropriate way, starting or growing a program, raising the visibility of the organization etc. This will vary depending on the organization's deliverables and the health and standard practices of the organization and industry. Some organizations can measure units of service while others have more qualitative outcomes. Within an organization, pay-for-performance is tricky if some staff have easily measured goals (again units delivered) as opposed to changes in client attitudes. If pay-for-performance is offered to one department, I would suggest that all employees have access to it in some way.

Question from Joe Brown, Slope Resources (consultant):
    Have you seen any change in the rate of compensation growth or other compensation practices across different nonprofit sectors (e.g., foundations, professional/trade associations, educational institutions, human services)?

Susan Egmont:
    Compensation practices are different across nonprofit subsectors. Some nonprofits (colleges, for example) may have union agreements, associations may be made up of highly or lowly-compensated members, and family foundations may be influenced by the compensation practices in the industry from which the wealth was generated. The background of the board members may also have an effect - if the board is predominately made up of venture capitalists vs. community organizers, you'll see different compensation practices! Where possible financially, human service organizations have made some strides in compensating staff more professionally. But for every increase, there is probably an example where the rate of growth is negligible. There is just so much variety in the nonprofit sector.

Question from Peter Panepento:
    How do you see the current economic picture affecting executive compensation in the nonprofit world? Do recessions tend to have much of an impact on salaries in this sector?

Susan Egmont:
    Nonprofit organizations are nervous right now (as are we all!). For organizations funded by government, tax collections are less than projected, and State budgets and being revised downward. Some of those cutbacks will be made in funding to human services, environment, arts and education and healthcare nonprofits. At the same time, employees may be seeing increases in food, housing, child care and other necessities. I expect most organizations will try to keep up with the cost of living, but larger merit increases may wait until there is a sense of more predictability. On the flip side, an executive who is "rainmaker" and can assure the board of the ability to meet the budget will be highly valued and may be able to ask for a salary that will insure s/he isn't looking elsewhere.

Question from Pat D, FFB:
    With respect to rating services such as GuideStar - there seems to be different (and at times vast) weights/variances to be considered. How can a donor make a good decision and what specific criteria should that donor look for? Thank you.

Chuck McLean:
    GuideStar does not rate nonprofits, and I think that the state of the art at most organizations that do is pretty superficial. I think the first job of the donor is to do what the ratings services do not - make sure that you understand WHAT the organization is trying to accomplish, HOW they try to accomplish it, and how they MEASURE whether they are successful. That is a lot of work for a 25 buck donation. In my own philanthropy, I try to really get to know the organizations I give to, and make larger donations to a few that I think are doing a really excellent job.

Peter Panepento (Moderator):
    We have about 15 minutes left -- enough time for a few more questions. If you have a burning question that hasn't been answered yet, now's the time.

Question from Susan Buckles, private foundation:
    Based on your study, would you say nonprofit salaries are keeping pace with inflation, and if not, what can we as staff members do about it, shy of changing jobs?

Chuck McLean:
    Well, using Form 990 data, we are mostly stuck with analyzing upper-level positions. In that analysis, we find that the key employees at organizations are at least keeping pace with inflation. At the very large organizations, they are doing much better than that, and at the smallest organizations, they are basically just keeping up or even losing ground.

One thing that we do at GuideStar, which is certainly not without a cost, is hire a compensation firm to do a market analysis of our positions based on job descriptions and responsibilities for every job in the organization. This helps ensure that everyone is fairly compensated. This is probably not practical for smaller organizations, though. One option is to try to get your hands on a survey that Abbott Langer (http://www.abbott-langer.com/) does annually that reports on most positions at their respondents' organizations.

Question from Susan D:
    Some trends I have seen in the past six months: the elimination of higher paid positions and the replacement of these functions by newly designed jobs that pay half as much. The increase in part-time positions instead of full time positions. An increasing demand by recruiters and hiring agencies to hear "what you were paid before" prior to committing to a salary range for the position being advertised. How do you address these kinds of issues? If you suspect a pattern of discrimination based on age or gender, how do you respond?

Susan Egmont:
    As a search consultant, the practice you mentioned of asking for a salary requirement from job seekers is very familiar. Knowing the reason behind that might be helpful. It's not generally to drive down the salary you can expect or to pay less that would be appropriate. It's generally asked in order to evaluate whether the organization will be able to meet your expectations and to evaluate seniority based on how you have been compensated. When asked that question, it's good to have a number in mind that you believe is appropriate for that position based on your homework (asking colleagues, checking online information etc.) and that you would feel compensates you fairly. If you are applying for a position that is pays a great deal more than you currently make, be prepared to make a case based on different job responsibilities, recently acquired qualifications, differences in regional cost of living, etc.

If you suspect discimination, you might let the recruiter know you have concerns. Discrimination happens, but in my experience search committees value the experience brought by mature job seekers and they know that discrimination is not only illegal but damages the mission and values they are promoting.

Finally, part-time positions may be more common as a result of budget struggles. An organization may need a particular function but feel they can't guarantee a full-time position. Replacing highly paid staff with jobs that pay half much sometimes happens when there is a very long-term incumbent whose salary has increased incrementally over time (say 30 years) although that's not always the case.

Question from Pat, FFB:
    Would appreciate your insight on the effects you say the economic turmoil having on compensation programs in the areas of merit increases, benefit programs, job stability for nonprofits.

Susan Egmont:
    There is certainly an effect. Nonprofits may hold off on starting new programs and hiring staff, or they may delay expansion. Some have to cut back depending on funding sources. It's also a time many are retrenching or waiting on increasing or benefits changes. Most nonprofits really, really want to keep staff who are contributing to the mission so in that way it's a great time to keep your job! As a search consultant, I've seen that it's a difficult time for families to relocate because it's hard to sell a house and a "trailing spouse" or partner with a good job is less likely to feel s/he can find another one in a new city.

Question from Peter Panepento:
    Any other trends/nuggets from your survey that you find have been overlooked during today's discussion?

Susan Egmont:
    There are good jobs available at good salaries in all economies. People leave jobs (and thus create openings) to retire, go back to school, follow a partner to a new part of the country, to stay home with small children, or just because it's time to do something new). Allowing plenty of time (not quitting before you have a new position) can allow you to find a well-paying position that will satisfy your professional needs. Being patient where you are if you feel an increase is needed may be appreciated by your employer when increases are more possible.

Peter Panepento (Moderator):
    Thanks for joining us today. Please feel free to join us next Tuesday at noon Eastern time for our next live discussion. The topic -- creating tantalizing taglines for your nonprofit organization. It should be a fun topic.

And please note that you can read transcripts of all of our previous discussions free of charge at http://philanthropy.com/live. Thanks.