Total Compensation Solutions (TCS), a human resources consulting firm, has published its most recent edition of its annual Not-For-Profit Survey, which reveals some interesting data regarding current trends in non-profit compensation; in particular, the growing prevalence of formal bonus plans and some shifting in the total compensation mix. Paul Gavejian, TCS’ Managing Director and a former Watson Wyatt colleague of mine, graciously agreed to an interview to shed a little more light on the survey’s findings in these areas. In Part 1, today, we talk with Paul about formal bonus/incentive plans in non-profits. Later this week, in Part 2, Paul will address TCS survey findings regarding the mix of compensation (relative proportion of cash versus benefits) in nonprofit organizations.
Q: Paul, the press release for the most recent edition of your Not-For-Profit Survey notes the growing prevalence of formal bonus plans for nonprofit executives. How prevalent are these plans now – what percent of non-profit organizations (according to your survey) have such a plan in place for executives? And what about practices for non-executive nonprofit employees?
A: The 2007/2008 survey indicates that 42 percent of all nonprofits have a formal incentive compensation plan in place. The percent receiving an actual payout, by employee group, is illustrated in the table below. As the table shows, our survey indicates that 35.6% of all Executive Director/CEOs received an incentive payout and 29.7% of all Vice Presidents received an incentive payout. Exempt and non-exempt employees also received bonuses as shown below.
Q: Do you note differences in the prevalence of executive bonus plans between smaller and larger organizations, or among different subgroups within the nonprofit industry?
A: TCS did not specifically survey the relationship between size of a nonprofit and prevalence of executive bonus plans. However, an analysis of the industry subgroups indicates that health and welfare organizations (mostly hospitals and organizations that work on health care policy issues) offer an annual incentive more frequently than other organizations. Research and environmental organizations offer incentives as well. These organizations generally have to attract employees from private sector companies that do offer bonuses and that may explain why they also offer bonuses. The practice is not as prevalent among membership, cultural and social service organizations that do not have a private sector counterpart.
Q: To what would you attribute the increasing use of formal bonus or incentive plans in nonprofits?
A: With the exception of labor markets that are heavily weighted towards the public sector (e.g., Washington, DC, various state capitols, etc.), non-profit organizations need to compete with for-profit companies in the overall labor market. For-profit companies typically offer at-risk pay and provide a mix of compensation that recognizes the value of the position in the external market through base salary and the value that the incumbent brings to the position (performance) through bonus/incentive pay. As non-profits adopt incentive plans, they increase their ability to recruit highly qualified employees from the private sector, especially among those organizations that have strong counterparts in the for profit sector (health and welfare; and research and development). They also increase their ability to recruit recent college graduates who want to work for a mission driven organization.
Total Compensation Solutions (TCS) is a human resources consulting firm dedicated to assisting clients in achieving their strategic compensation objectives. The firm uses market data to identify best practices in a variety of topical areas including: compensation; performance management; organization structure; health and welfare; and retirement benefits.