Must Nonprofits Develop Employee Benefits That Substitute For Annual Raises?

By: Eugene Fram

A recent analysis in the Washington Post reports that a tsunami-style change is talking place in the manner in which United States’ employees are being paid—benefits are being offered in place of annual salary increases. (http://wapo.st/1MwoIBZ) Driving the change are the needs of substantial portion of millennials who appreciate immediate gratifications in terms of bonuses and perks, such as extra time off and tuition reimbursement. Employers like the arrangement because they can immediately reward their best performers without increasing compensation costs. Example: One sales employee spent weeks reviewing dull paper work, was very diligent in the process and was given three extra days of paid leave. She said, “I think everybody would like to make more, but what I liked about it was the flexibility.”

Matching Nonprofit Employee Lifestyles:

Will nonprofit boards and organizations be able to adapt to the model strategically in an environment where wages are traditionally low and annual salary raises at best have ranged from two to three percent annually? Assuming this trend becomes a well-accepted one for nonprofits, those who follow the leaders will need to match the same types of benefits. For nonprofit boards that will have to approve the change, following are some of the benefits and challenges will occur.

How It Might Work?

Assume a nonprofit with a $2 million budget has allotted 3% for salary increases–$60,000. About half the allotment ($30,000) is designated for immediate benefit awards to achieve a “stretch” performance or for unusual performance on their own initiatives. This would allow the very top performing persons to choose from a “buffet” of benefits during the year and for immediacy awards.

Benefits:

• Compensation benefit budgets will be easier to predict and implement.
• It will be easier to note high performance employees as role models because their work will be rewarded quickly, after the work has been performed.
• The plan meets the lifestyle needs of a substantial and growing portion of the US workforce. It also meets the cohort’s emotional needs—frequent and substantial praise. It is a workplace substitute for the “Good Job!” praise under which many have matured.
• For the board, the names of persons continually receiving perks and other benefits should be on a promotable listing to overview in terms of succession and development.

Challenges:

• Except for an occasional CEO compensation plan, few nonprofit boards or managements are familiar with establishing and managing bonus plans—probably a major lifestyle choice for many middle and senior managers having educational expenses.
• As a lower wage industry, will nonprofits be able to develop attractive benefit programs to cover all staff lifestyle segments, not just millennials?
• To what extent will the effort to highlight the impacts of better performing management and staff personnel lead to reduced effectiveness of teams? Will sharing of information decline? Some may withhold information or suggestions until a time that seems best for the individual? Example: A teacher develops an effective ways to teach slow learners but doesn’t share details with his/h colleagues because she/h feels others will improve their performances at his/h expense.

New norms for performance compensation are rapidly being developed in the for-profit environment. To compete for superior personnel, it seems that nonprofit boards will have to modify their compensation strategies/policies to follow market driven practices.