Making the case for more competitive salaries

Written by: Mary Bear Hughes
Published on: Aug 15, 2018

Mary_Competitive salaries

When it comes to being more competitive with salaries, nonprofit executives are the ones who must lead the charge: Our boards – and our funders – must be educated on the need. And to convince those vital stakeholders to increase investment in our employees, it will take both data and a strategy. The best argument for more competitive employee pay comes in the form of cost data and a multi-year plan to bring salaries to a target percentage of the employee market.

But what does that mean? Pursue the following steps, with the help of a dedicated board committee, and you’ll develop just such a plan, supported by the required data.

1. Establish a goal. Identify the percentile that your current employee salaries fall into. Using employee surveys, which you can buy for about $400 to $500 (check industry- or discipline-specific associations for surveys that cover your people, as well as general nonprofit surveys), you can discover where your salaries are positioned with respect to the market. With that data, you can set a target percentile: Where you think your salaries need to be in order to attract the employees you want, retain them, and get the best from them.

For instance, you may find that, on average, your employees’ salaries fall in the 40th percentile. That means that 60 percent of people with the same position are paid more, and 39 percent are being paid less. Keeping in mind that the 50th percentile is the median salary – where half are paid more, and half are paid less – you might decide that the 60th percentile is a realistic target that will get you the people you need, and keep them onboard and productive. Be sure to consider employee benefits in your calculations: If your operation is too small to offer the same benefits as other organizations, you might want to aim for a higher salary percentile.

2. Understand the cost of every part. Whatever service or product you’re providing, you must account for the cost of everything, including the salaries involved in each aspect. Only when every program absorbs its share of overhead – essentially zeroing out the cost of executive leadership, functions like accounting, marketing, research and development, and target salaries – will you arrive at the true cost of doing business in a manner that will achieve desired outcomes.

Once you’ve established the total cost for running a program, determine the appropriate unit of measure for it – say, the number of visits made by clients to your nonprofit. Divide your total by the number of clients who visit in a year, and you have your true “unit” cost. That's the number that you can take to funders to demonstrate how much money it takes to run your organization or a particular program. This way, you aren’t asking them to fund increased salaries, but to fund the true cost of delivering a quality program that achieves a significant outcome.

3. Determine incremental annual increases. You’re not going to get to your target percentile overnight. After you identify your goal, determine the annual increments it will take you to get there. The most important part is to treat these increases as part of your overall strategy: Write your goal, and the associated annual increases, into the strategic plan, and present them to stakeholders as a vital part of your strategy. After all, you won’t meet your other mission-oriented goals unless you have the people you need.

For instance, say you’ve decided it’s going to take five years to bring the majority of your employees, or your front-line workers, from the 40th to the 60th salary percentile. That goes into the strategic plan as a goal, with objectives to increase pay each year toward that goal. If it's a three-year plan, add the first three years of objectives – say, increasing to the 44th percentile, then the 48th, then the 52nd. Implementation may include making increases first to positions where pay is substantially below the baseline for the organization or numbers needed for recruitment and retention.

4. Gain board support. Be sure the board understands that pay increases are essential to the mission and the strategy for pursuing it: “We cannot achieve the goals in our strategic plan if we have a revolving door, if we do not have highly-qualified employees, and if those employees aren’t able to be their most productive.” Ensure their understanding by ensuring your presentation is very data-oriented: Present the unit-cost information and salary benchmarks researched by the committee, as well as your turnover rate and its cost. You can quantify the cost of turnover by calculating the time to hire for each opening, and the loss in productivity caused by the vacancy. You can also cite statistics about the effect of financial stress on productivity and job satisfaction; for instance, respondents in a Work for Good nonprofit employee survey ranked compensation as their number one concern when deciding whether to pursue a new job.

Mary Bear Hughes is a nonprofit consultant specializing in executive search and succession planning.