Compensation strategies for nonprofits competing in tight labor markets
- Nonprofits must compete in a tight labor market: Competition for talent and wage pressure is intense, making it essential for nonprofits to offer competitive pay, flexibility and work-life balance to attract and retain employees.
- Define a clear compensation philosophy and structure: Organizations should establish a compensation committee, articulate their compensation philosophy and maintain clear job descriptions to create consistency and fairness in pay decisions.
The competition for talent is fierce, so developing a mission-driven compensation strategy is critical to recruiting and retaining top talent. Nonprofit organizations are seeing increased wage pressures with competition from previously unlikely sources, including restaurants, hospitality, retail, fast food restaurants and distribution centers.
To attract and retain employees, nonprofits are having to offer more compensation, flexibility and better work-life balance. This requires agencies to create a mission-driven environment that retains existing employees and shines a spotlight on their mission to attract new talent. Understanding what your employees want is critical to reducing the nonprofit turnover rate and improving employee retention.
Creating a nonprofit compensation plan
Compensation planning has often been a significant challenge for agencies, and it has become even more difficult when considering the numerous questions your organization must consider as you craft a competitive compensation plan, including:
- What is our compensation philosophy?
- How will we compete with retailers, manufacturers and other industries whose base wage is steadily increasing and easily discernible?
- What is going to be our internal minimum wage level?
- Should we incorporate paying living wages to our employees?
- How are we going to release the inevitable wage compression that is going to occur?
- What are the other top-of-mind questions in our agency regarding the compensation package currently in place or needed in the future?
- What is our position on pay transparency?
Because of these and other questions, developing a base compensation plan involves several proactive steps to align your agency’s goals, along with your mission, vision and values.
Consider these fundamentals in your structured approach:
- Form a compensation committee and develop your compensation philosophy. This establishes the stakeholder group and sets the foundational principles to guide your compensation plan and help ensure pay equity.
- Develop or update your job descriptions so that positions, roles and responsibilities are accurately defined. Having updated job descriptions is becoming even more crucial in the new era of pay transparency regulations.
- Perform an external market analysis utilizing published wage and salary survey data to understand current nonprofit salaries in your area or region. Consider leveraging data related to like-sized, comparable industries due to the highly competitive market. Engaging in a formal analysis enables your agency to tailor and customize its program to meet its own unique needs, while still operating in the competitive market. Utilizing a nonprofit compensation report can provide valuable benchmarking data.
- Develop a salary structure and calculate the financial impact of implementing that structure. Salary benchmarking and job evaluation are key components. Ensure the structure aligns with 501c3 salary rules and nonprofit pay practices.
- Document the compensation plan. Proper documentation helps ensure all aspects of the plan are recorded and justified while providing a log to reference in the future. A nonprofit compensation policy sample can provide a helpful starting point.
- Implement and adjust the salary structure annually to assist in monitoring the current landscape and market trends.
- Provide training to managers to equip them with the necessary information to articulate the plan and answer questions to support their employees and team.
- Communicate the plan to employees in a way that’s tailored to meet your agency’s pay transparency and overall communication level. Clear communication helps build trust and confidence in pay administration decisions, especially once employees understand the compensation strategy and see how it aligns with the agency’s goals. Be clear whether you will disclose salaries, as some states now require.
How can nonprofits compete on salaries?
It’s essential to recognize that compensation strategy extends beyond salary into benefits, creating a comprehensive total rewards strategy.
Current and prospective employees may no longer be satisfied with the traditional employee benefits and perks. With four generations in the workplace, agencies should confirm they have the right attraction and retention levers in place, including understanding what makes their workforce tick.
Unsurprisingly, all generations in the workforce want benefits and perks that will directly impact their lives and their families’ lives. However, they also desire non-monetary benefits, such as:
- Flexible work arrangements such as hybrid or remote work
- Generous paid time off and family leave
- Personal and professional development opportunities
- Career advancement paths
- Opportunities for a phased transition into retirement
Incentive programs and other forms of indirect compensation can also play a role.
Compensation must remain a priority
Nonprofit compensation and total rewards reflect the dynamic interplay between employer strategy and ability and employee expectations. They also must strike a delicate balance between mission-driven purpose and practical sustainability.
As your agency navigates this complex terrain, you should remain proactive, intentional and agile in implementing approaches that resonate with your diverse workforce.
Developing a comprehensive talent strategy that encompasses employee engagement, recognition, performance management, professional development and career development is crucial. Focusing on work culture, employee satisfaction and mission alignment can help boost retention rates and reduce voluntary turnover.
By crafting strategies to reflect the unique spirit of the sector while also driving equitable and competitive standards, your nonprofit can be positioned to attract dedicated professionals who are not only skilled but also deeply aligned with your organizational mission. Nonprofit leadership and HR play important roles in developing and executing an effective talent strategy and employee retention policy.
How Wipfli can help
Wipfli’s compensation specialists can help your nonprofit develop competitive compensation and benefits strategies that boost employee retention and reduce turnover. Contact us today to learn more about optimizing your overall approach to employee retention in nonprofit organizations.
