You are on page 1of 36

COMPENSATION STRATEGIES FOR NONPROFITS

October 30, 2008

Bay Area Nonprofit HR Network

San Francisco, CA

Today’s Discussion
 

Introductions Total Rewards Model


Compensation Challenges and Solutions
Wrap-Up and Questions

1

Total Rewards Model

2

Elements of Total Rewards WorldatWork’s model includes five elements: 1) Compensation 2) Benefits 3) Work-Life 4) Performance and Recognition 5) Development and Career Opportunities 3 .

What is your Compensation Philosophy?  How do you look/act different from competitors? How does compensation fit with other Total Rewards? How does pay link to “business” strategy? How much you value individual performance and differentiate pay as a result?    4 .

Compensation Challenge #1 Managing a tight salary budget Competing for Talent in the For-Profit World Competing with equity grants Driving performance without a bonus plan 5 .

Possible Solutions Managing a tight salary budget 1 Manage pay with a market-based salary structure 2 Differentiate salary increases based on a merit matrix 3 Take a Total Rewards approach to marketing 6 .

Solution #1: Market-Based Salary Structure What is a salary structure?  Defines the base pay opportunities for jobs in an organization or company  Made up of grades and corresponding salary ranges developed from data about pay patterns in the market Used to establish and maintain the internal and market value of the positions in an organization  7 .

which becomes your midpoint Put a min-to-max range around midpoint 8  .Solution #1: Market-Based Salary Structure Below Market Above Market $ Minimum Salary $ Market Midpoint $ Maximum Salary  Start with competitive survey data for an individual position  Determine the “market rate” for the job.

Langer Salary Surveys   ERI Nonprofit Comparables Assessor CompAnalysis 9 .Solution #1: Market-Based Salary Structure Nonprofit Compensation Surveys      PRM Consulting GuideStar Council on Foundations Watson Wyatt Data Services Abbot.

Solution #1: Market-Based Salary Structure Grade 7 min Grade 6 min Grade 5 min Grade 4 min Grade 3 min Grade 2 min Grade 1 min max max max max max max max 10 .

5 15.2 $41.7 $64.0% 20.3 $179.0% $35.0% $107.5 $137.0% 20.0 20.4 $47.3 $76.0% $47.0% 20.0% 15.0 $41.0% $134.4 $95.0% 10.Solution #1: Market-Based Salary Structure Salary Grade 10 9 8 7 6 5 4 3 2 1 Total Midpoint Progression 25% 25% 20% 20% 20% 19% 17% 15% 15% Range Width Base Salary Range Low High Minimum Midpoint Maximum 20.2 $179.4 $143.6 $54.9 20.0% 15.0% $30.0% $40.6 $36.0% $67.2 15.6 $79.6 10.0% 15.0% 10.3 $66.5 $91.0% $76.0% $56.5 15.3 $55.5 $114.4 Number of Positions 1 6 4 10 9 5 4 8 5 2 54 11 .1 10.5 20.0% $91.8 10.5 $47.6 $114.0% 10.0% 20.1 $223.

0% 5.0% 7.0% 3.5% 2.0% 1.5% 5.5% 10. Meets Meets All.Solution #2: Merit Increase Matrix Performance Rating Meets Some.0% 3. Exceptional Not All Requirements Exceeds Some Performance % Increase % Increase % Increase % Increase 3.0% 12 .0% 0.5% 5.0% Position In Salary Range Bottom Third Middle Third Upper Third Does Not Meet % Increase 0.0% 0.5% 0.5% 7.

Solution #3: Total Rewards Approach Total Rewards Statements show employees what the organization spends on them each year  Using a software program. statement itemizes: – Compensation – Benefits costs paid by organization – Retirement contributions – Value of other perks  Often-missed “marketing” opportunity for HR 13 .

Possible Solutions Competing with equity grants 1 Beef up retirement plan offerings 2 Offer (real) work/life balance 3 Emphasize generous benefits 14 .

Possible Solutions Driving performance without a bonus plan 1 Formalize performance assessment and goal-setting process 2 Differentiate salary increases based on individual performance 3 Develop career paths 15 .

Compensation Challenge #2 Offering competitive pay package Not attracting unwanted scrutiny Linking pay and performance Recruitment and Retention of Top-Tier Executive Talent 16 .

Possible Solutions Offering competitive pay package 1 Research competitive pay 2 Think about retirement (because executives are) 3 Be creative with “soft stuff” 17 .

Solution #1: Research Competitive Pay Understand the Executive Position  Position descriptions: Make sure the executive has recently reviewed their own job description Executive interviews: Meet with incumbent to understand scope of the job and market match Look for market match: Very few executive positions have no competitive comparable   18 .

environment  Then narrow it down within the industry – Hospital or outpatient clinics – Job training for low-income population – Animal welfare and protection 19 . social services.Solution #1: Research Competitive Pay Determine the Competitive Marketplace  What is the broad “industry”? – Ex: Healthcare.

Solution #1: Research Competitive Pay Determine the Competitive Marketplace  Executive pay is closely correlated with company or organization size – Most common measurement is annual revenue – Additional measures include • Budget • # of employees 20 .

Solution #1: Research Competitive Pay Determine the Competitive Marketplace  With whom do you compete for talent? – Is there an organization that recruits the same people you do? – Anyone that consistently steals employees from you? – Use the “next best offer” method 21 .

look to the competitive marketplace for relevant information. Competitive market defined through two data sources: 1. Publicly available IRS form 900 disclosures from a targeted comparator group 22 .Solution #1: Research Competitive Pay Establish a Peer Group Using the narrowed down “peer group” characteristics. Published compensation surveys 2.

Solution #1: Research Competitive Pay Establish a Peer Group  Casting a wide net helps eventually create a solid group (may start with hundreds) Then follow these steps to arrive at peer group: Types of Organizations What types of organizations are “like enterprises” or offer “like services”?  Filter #1: Operating Budget How many organizations have similar operating budgets? Filter #2: Employees Of the remaining organizations. how many have a comparable headcount? Comparator Group Arrive at a Comparator Group of 15 to 25 organizations 23 .

updated to the current date – Don’t use target total cash.Solution #1: Research Competitive Pay Analyze Competitive Total Cash  Published surveys report actual and target total cash amounts – We analyze base salaries and annual bonuses separately – Then look at actual cash compensation paid in last fiscal year. because target bonuses can be misleading if actual bonus paid varies significantly from the target 24 .

Solution #1: Research Competitive Pay Analyze Competitive Total Cash  IRS 990 Disclosures aggregate base salary and bonuses into a Total Compensation column – Can make it difficult to determine what was base salary and what was bonus  Once we settle on the market rate for a job. we put a range around that number – Typically +/– 20% for executives – May be a smaller range for nonprofits 25 .

Solution #2: Think About Retirement  Model the impact of your current retirement programs on key executives and employees under a variety of assumptions  It may be less expensive to make your retirement plans more generous than to increase compensation levels 26 .

Possible Solutions Not attracting unwanted scrutiny 1 Make sure you offer “reasonable compensation” Use independent 3rd party to conduct pay analysis 2 3 Follow good compensation governance guidelines 27 .

Like services 2. is the amount ordinarily paid for: 1. By like enterprises (whether taxable or tax-exempt) 3. Under like circumstances 28 .Solution #1: Reasonable Compensation Reasonable comp.

Solution #1: Reasonable Compensation 1. departments or locations managed Full-time or part-time 29  . Like Services     Type of work National position or local in scope Number of employees managed Budget or assets managed  Multiple functions.

Solution #1: Reasonable Compensation 2. # employees Same “business” type Could be a mix of nonprofit and for-profit as long as scoped appropriately Entities that compete for same pool of talent  30 . Like Enterprises    Size – budget. revenues.

Solution #1: Reasonable Compensation 3. Like Circumstances  Comparators must consist of similar mix of compensation elements Include all compensation. whether taxable or not Similar geography (cost-of-living)   31 .

Solution #1: Reasonable Compensation “Good Compensation Governance”     Systematic procedures set and followed Responsible effort to determine reasonable levels All taxable items reported accurately Board of Directors maintain appropriate oversight  Executive does not make decisions related to his/her own pay 32 .

Possible Solutions Linking pay and performance 1 Formal executive performance assessment and development 2 Goals and progress-to-goals linked to salary increases 3 Annual incentives paid based on achievement of stretch goals 33 .

Other Points of Discussion    Geographic pay differentials Employee communications Market movement for certain “hot” job families 34 .

CA 94133 (415) 438-3403 brooke@presidiopay. Inc. please feel free to contact me: Brooke Green Principal Presidio Pay Advisors.Questions If you have any questions about this presentation or other compensation issues. 850 Montgomery Street.com 35 . Suite 150 San Francisco.