Fixing the nonprofit compensation trap
Updated: Mar 26
I can’t count the number of times I’ve heard the old bromide that nonprofits should act more like businesses.
When it comes to compensation practices, nonprofits are doing a great job of mimicking business and that’s not a good thing.
If you take a look at salaries for top level nonprofit execs, you’ll find that most folks are doing just fine.
It’s the rank and file who are suffering.
Even in the many instances where entry-level and mid-level staff are well educated.
For example, this past October, the Chronicle of Philanthropy ran a story about a crowdsourced salary spreadsheet of 2,500 museum professionals. There were huge wage gaps between the top, near-top, and mid-level staff – even for curatorial positions requiring a PhD or master’s degree!
If the problem were confined to museums, that would be one thing.
But it’s not.
Attorneys working for environmental organizations, people working in disaster relief, case workers of all types, medical professionals, musicians and so on are couch surfing, eating ramen noodles, and suffering intolerable commutes in order to do good.
Nonprofits have been turning a blind eye to the issue of compensation for far too long.
Cheapo salaries and nearly non-existent benefits are having an impact on who is hired.
Our hiring pool is limited to people who are crazy dedicated, have manageable student debt, and/or have income support from a partner or family.
How do nonprofits escape the compensation trap?
1. By working with your Board to create a compensation structure that respects the worth of all staff (not just the ones at the top).
If your nonprofit is in some way dedicated to social change or equal access (most are) then you must develop a salary and benefits package that allows people to earn enough to pay their bills.
When staff live paycheck to paycheck, and spend their days worrying about meeting everyday expenses (and how they’ll eventually retire) their energy isn’t being focused on doing the important work that needs to be done.
Develop a policy that commits to:
a) ALL staff earning at least a living wage.
Paying decently ensures that staff can concentrate on ONE job – yours – and not dilute their energy with gig work.
Fair pay at all levels will decrease turnover – saving you time, money, and aggravation hiring and training replacement staff.
b) All staff having good vacation benefits, access to health plans, and a way to contribute to a retirement fund.
Healthy living – both physical, emotional and mental – are keys to healthy productivity!
2. By making a commitment to implementing the compensation structure.
The Bridgespan Group famously coined the phrase “Starvation Cycle,” to describe how grant and contract practices chronically underfund real nonprofit operating costs (and how nonprofits are sheepishly complicit in this dysfunctional dynamic, in part by racing to proclaim they have the lowest overhead of all).material
Recently, they’ve done more brilliant work on the topic in collaboration with major national funders to understand and address the herd of elephants in the room.
The bottom line is this: If your nonprofit is committed to paying better, it needs to figure out an income strategy that allows you to make that happen. This will likely involve:
Talking with donors about the true costs of operating your programs. These will be difficult conversations to have, however, sharing the Bridgespan Group materials should help. It’s simply not fair to ask people to be poor because the feel compelled to do good for others.
Having difficult conversations with legislators and public agency administrators about your actual costs and urging them to advocate for real change.
Making sure you have soft money from individual donors, members, and special events that you can use to fill in the gaps (particularly for public contracts).
Talking with your community foundation, county government, and others about establishing zero interest bridge-loan funds to bridge signed contracts (which will ease your cashflow).
There’s no silver bullet to getting to fair compensation for nonprofit workers. If you can’t make these changes all at once, provide your staff with a reasonable implementation timeline.
Just like all the work we do, you have to commit to making it happen.
Pat Libby is a nonprofit consultant that helps charities with organizational strategy, board restructuring, and executive searches. Pat has served as an academic, senior executive, board member, and consultant to innumerable nonprofit organizations and foundations for more than three decades.
Get in touch if you have any questions!