Episode 60: Nonprofit Compensation in Today's Economic Environment

Welcome to another edition of “Around with Randall”, your weekly podcast making your nonprofit more effective for your community. And here is your host, the CEO and Founder of Hallett Philanthropy, Randall Hallett.

It's always a pleasure to have you back here on “Around with Randall.” Today's conversation is about employment and salaries and outside pressures that are affecting the nonprofit world and I’m going to try to bring about six or eight things together that have all happened maybe in the last couple of weeks, and I’m kind of beginning to triangulate them into a coherent thought about what we should be doing in the nonprofit world regarding salaries and retention of great employees. 

So the first thing is, for many nonprofits it's the budget season. Many nonprofits end on their year on December 31st, the others, about June 30th. So we're kind of in this mixture of people beginning a budget cycle. Number two is, I’ve been asked recently to review some of the issues that Hallett Philanthropy did in our employment survey. I highly encourage you to go back and find that podcast about three months ago, I think. There'll be some more things coming out about it because it's creating some conversations regarding how to keep and retain great employees. Specifically, had some questions around what are the two or three key aspects in retention and what we talked about in that job survey was not only fair compensation but bonus structure and flexibility and things of that nature. The third piece is that there's a number of strikes going on with nursing, in particular, in nonprofit hospitals. You have certainly some activity in Massachusetts, Buffalo, and in Minnesota, in several of those they have released that they are offering the hospitals an increase in pay of three percent, two percent, things of that nature, and the striking nurses are saying yeah but you're not paying any attention to inflation and we'll talk about that in a second. Another thing to think about, recently Florida announced that it was raising its minimum wage and in smaller communities, cities have been announcing increased minimum wages, and I don't think anybody's against people getting paid more but if the minimum wage goes from $8.25 to $12 and you are a social service nonprofit with employees who are on the front line how do you make up that gap? Do you provide less service? Do you find more philanthropy, more dollars? It's not an easy solution and a lot of smaller nonprofits are trying to figure this out. We also have the pandemic to deal with so hundreds of thousands of jobs were obviously lost in the nonprofit sector. In a recent study where the Wall Street Journal and the Chronicle of Philanthropy - different articles with the same information - talked about that, we're about 60 percent back in the nonprofit space in terms of job recovery, and the two biggest are education and health care, that they have been able to reinvest in their people and bringing them back on board. And then just this last week was an article that really talked about the rise across for-profit nonprofit lines when it comes to employment and that we're seeing a year-over-year increase of pressure on salaries of about four percent and that's driving a lot of decisions inside organizations. And when you pair that with inflation, which just obviously has been of recent note in particularly this last week what we saw is inflation is now ticked up to about 4.4 percent annually-year-over year, that's a 30-year high. And then the last piece is a recent study that just came out that talks about the for-profit versus non-profit compensation and that what we find is is that in like marketing there's a 17 percent decrease according to pay scale if you work in marketing in the nonprofit sector versus the for-profit sector, with the for-profit sector paying more. Systems administrators get paid about eight percent less, human resources about seven and a half percent less, accountants or those in finance get paid seven percent less, marketing in terms of like coordinators in that level is about seven percent, administrative assistance is four percent less.

So why am I talking about all of this all these pieces from kind of the national data to specifics to examples and things of that nature? It is my belief that we are coming into a real time of concern when it comes to employment in the nonprofit world because there are several factors working against us. The first is, traditionally we in the nonprofit world are paid less than for the for-profit world. Number two is there was an immense decrease in jobs, not just in the nonprofit world, but that's what we're talking about here. And number three, there's great inflationary pressure so when you go to the grocery store it costs you more to buy groceries, basic needs, services, and that's now putting pressure on rent, that's putting pressure on housing costs, that's putting pressure on cars. And then the last factor, which we didn't even mention in kind of the philosophical opening is this idea of pressure from the from supply chains, and you've probably seen the stories of things backed up at the Long Beach harbor and Savannah, Georgia and down in Mississippi, and certainly Los Angeles, all of this is is applying kind of a constricting principle, series of principles to the economy which is speeding up change in terms of additional costs. And I’ve got a number of clients that are looking for non-profit fundraisers, for nonprofit leaders, and they're struggling to find candidates. And I’ve got some who people who I know maybe not as much clients who are asking should I be out looking for a job because I can go earn more money. And I’ve got a number of people who've left the nonprofit space because they were given such great opportunity in the for-profit space and they took quite large increases to get there. I truly believe that we're headed for some really trying times when it comes to employment in the nonprofit world, in-part because we may not be able to get the talent that we need, in-part because the marketplace, the employee pool, has changed dramatically, and lastly we don't have a history of paying well, which is going to become a detriment.

So the tactical pieces of all of these different aspects deal with two specific kind of vantage points. One, the individual, and one, the organization. And I’ll take the individual first because it's probably the simplest because organizational conversation is going to get a little more complicated. The first and foremost is if you are in a situation where you are looking at an annual increase that's quite low, and that's not abnormal in nonprofit or in the nonprofit world as costs are tried to be mitigated or kept as low as possible, but we're also coming out of a pandemic and revenue streams have been compromised a little bit in some cases, you might be in a situation where you're looking at, well I’m getting a two percent raise but inflation's up 4.4 percent. I’m gonna be losing money. It's really important that you have open and honest conversations with your boss with your supervisor and data is the key. Data about what's going on in the broader perspective. Data that comes from comparatives - whom are you being compared with, and this is interesting because and we'll talk about this in the organizational-wide conversation, you might have to, if you're an administrative assistant, have to be able to get information about I can be an administrative assistant in a for-profit environment and make 12 percent more than I’m making now, how do we mitigate that difference, I don't want to leave, or if you're a gift officer you may have to look at something like sales, or if you're in finance an equivalent finance position in a for-profit company. Data is critically important. Just walking in and saying, well I want more money, it's not going to help you. Why do you want more money? And more importantly has your performance - I should have mentioned this at the top - has your performance been strong? Have you delivered on what's being asked of you on a daily, weekly, monthly basis? And then the second thing is to think about ROI, and I deal a lot with gift officers in healthcare, education, social services. I talk a lot about if you're going to have this conversation do it with the proper data, number one. Is the appropriate comparisons and some comparisons are out there from the Give USA, or from Nonprofit Times or from AFP or AHP, there's a lot of options, but the also is the return on investment your cost versus what you deliver. In using that as a template to say I’m doing really good things and I want to continue, but I want to be paid fairly. The second thing is, if you're an individual, is are there other things that you would be amenable to in terms of benefits that don't really cost your organization any money - flexibility on where you work, maybe some sabbatical time, maybe you could get one day a month to go do some consulting and find another revenue stream? Having options that are reasonable and data-driven will create a more, really, a stronger conversation, and that's what you want. You don't want to diatribe with you telling your employer, you got to pay me this or them telling you we're just going to have this conversation. Both of those situations are terrible. A conversation is a two-way discussion about negotiating the best possible option. The more challenging one is going to be at the organizational level.

I had a recent conversation with a friend who is reaching what is being compared to, at least geographically, as a higher point in like salaries and compensation packages for other people who do what she does at that level. And she called me and she says “I have increased the amount of revenue we've brought in, we have never been more net revenue-driven, we have increased services, I’ve met every expectation, we have kept costs down.” And I asked her, I said well what are their comparisons and she says well this little pool, and I said you got to expand it. And her comment was, they don't want to. And this is where the hard conversations are going to have to occur. There has always been a thought process that non-profits shouldn't be competing with for-profits when it comes to talent. The people should just walk in the door and be willing to accept less money for the same job or a similar job, and I think that's coming to an end. I think that the financial challenges of the pandemic have caused people to think I may have to make up some, I lost some ground. Maybe they had things in the stock market and got in or out at the right or wrong time, maybe someone in the family got laid off, maybe they just realized they need to make more money, or they want to do something different. Non-profit boards and executives, if you're in a larger organization, are going to have to have some hard conversations about philosophy and compensation, compensating people. That's going to be complicated. If you're at a state institution like an organization of higher learning, state college, university, where there may be state limits, say employees shouldn't be paid that much, or if you're in a smaller non-profit, a board who's like well we just don't think we should be paying this much, first and foremost is to have these conversations philosophically. And it's not how much do we pay, do we want to keep the people we have and attract others like them, there's a cost to that. If you start with the process and not the number you'll have a better opportunity to bring more people to the conversation for them to realize the challenge and let them also bring their own personal experiences, particularly if it's a board, to the table. These are, in some cases, business owners or executives themselves who are having the same problems.

The second thing is is to compare and use data from outside the nonprofit space as close as we can so there's a realization that if we use the marketing manager as the example getting paid nearly 20 percent less as a marketing manager in a non-profit job versus a for-profit job, you're going to turn over a lot of people or you're not going to get the talent you want as an organization. You can maybe fill the job but is it with someone who's going to deliver. The last is a sense or a conversation or a process to realize that it's really expensive to replace employees. So on average what we see is about 20 percent of the salary is the cost just to replace them, that's just to get them in the door. That doesn't include lost productivity, and if we think about gift officers as a primary example, it takes a year to three years to rebuild some of those relationships if someone leaves. The ROI on the loss is just not 20 percent of the salary, it's 20 percent of lost opportunity or complete loss of opportunity. It's not having those relationships.

So if you're an individual having open house conversations using data, talking about ROI, giving, and thinking about other alternatives in benefits as examples or options to really satisfy what you think your demands or thoughts are on what you should be compensated, remember conversations about salary, it's about other things. And number two, organizationally, is going right to the top and starting with the philosophy and talking about the numbers, not about what people get paid but the costs involved, and are we wanting to attract the very best, and are we comparable not only to inside the nonprofit space but outside as well. These are going to be really hard, challenging,

sometimes angry conversations, and the more we get ahead of it the less it becomes reactionary and becomes more proactionary in trying to set our organization apart as someone who wants to meet the demands of our employees. And at the end of the day, there's still the bottom line, there's still going to be moments when you can't and that's going to be even harder because good people are moving right now. The great resignation is just beginning in terms of turnover in jobs and the nonprofit sector is part of that we're going to have to come to grips with, what it means to keep and attract great people. 

As always, the website is there, www.hallettphilanthropy.com, there's now postings of success stories and and other information. You can read the blogs - two or three a week - about a minute read, minute and a half read, max, to maybe get you to think about something, some maybe helpful tips and hints there. And of course you want to communicate with me that's Randall Hallett at Hallett Philanthropy and you can get a hold of me at podcast  at hallett philanthropy or if you want to complain reeks at hallettphilanthropy.com. Don't forget as I say each and every podcast some people make things happen, some people watch things happen, and then there are those who wondered what happened. There are more people than ever looking for answers who are wondering what happened, and nonprofit work is about making things happen for them, their needs, the community's needs, all kinds of things that make what we do valuable. What I hope is that you feel that value because that should be a part of compensation is knowing you're changing the world. Maybe your world's pretty small, maybe you're working at a big place and it's pretty big, but changing one life is worth it and changing lots, gosh, that's just the dream of anybody, particularly those that work in this profession. So realize you're someone who's making things happen for those people and those issues that are causing people to think what happened, and I hope you feel good about what you're doing each and every day. I can't thank you enough for joining me on this edition of “Around with Randall.” We'll see you next time right back here, and don't forget you make it a great day.