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Annual Compensation Planning in Nonprofits

Whitney Herrington, CEO & Senior Partner

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Before we begin…

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Who We Are

NLA collaborates with organizations building durable progressive power for the progressive movement.

NLA runs capacity-building programs for progressive organizations and ecosystems that are using multiple legal entities to build power, increase impact, and win critical battles.

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COMMUNITY NORMS (MUST BE INCLUDED)

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Learning Outcomes

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Discuss market recommendations for pay in 2024

Understand how your org can reward appropriate pay – salaries and bonuses

Learn how to communicate your pay decisions with staff and manage expectations

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Agenda

Introductions

Salary Increases

Market & Economy Data

Determining Salary Increases

Bonuses

Communicating Decisions and Managing Expectations

Staff FAQs and How to Respond

Questions & Wrap Up

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Context Setting:

As the year end approaches, we know that your organizations – and most other organizations – are preparing and finalizing 2024 budgets. A big piece of this work is determining salary/payroll budgets and making decisions on pay for your staff.

As our country continues to be impacted by the highest inflation in 40 years that disproportionately outweighs wage growth, particularly in the nonprofit sector, we know that organizations are contending with what are appropriate and feasible levels of pay for this upcoming year. Further, nonprofits salaries have traditionally been stifled in the nonprofit industrial complex – paying very low salaries because of “charity” work, and funders expecting funds to be used on programmatic work rather than operating expenses like pay – which continues to be the case today and causes tension in our abilities to attract and retain staff in fast moving markets that are primarily driven by the for-profit sector.

For multi-entity organizations, it’s likely that funding cycles ebb and flow depending on whether its an election year or not, and that can have a meaningful impact on your budgets and ability to reward pay. Today, we’ll talk about all of these things and help you navigate.

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Poll: �Is your org planning to provide (or have provided) salary increases to your staff for 2024?

Yes or No

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Poll: �If yes, how do you reward increases?

COLA

Standard Increase

Merit- or performance-based

Bonuses

Other

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Salary Increases

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Salary Increases Over Time

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Salary Increase Approaches�Cost of Living Adjustment (“COLA”)

Pros

Aligns with economic movement
Provides equality
Easy to administer and explain

Cons

Varies year to year or month to month
Can be difficult on org budget
No equity consideration
Doesn’t reflect performance

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A COLA is a salary increase made to “counteract” the effects of rising prices in the economy (inflation).

Typically, equal to CPI for Urban Wage Earners for a period or region

A COLA is a salary increase made to “counteract” the effects of rising prices in the economy (inflation).

COLA are typically equal to the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for a specific period or geographic area. The CPI represents the average prices of a basket of goods and is used to measure inflation.

Orgs may also use the annual increase from the Social Security Administration which is also based on CPI.

�Pros: Attempts to align with the economic movement affecting the workforce, provides equality across staff with an equal percentage increase, makes it easy to administer and explain

Cons: Varies widely year-to-year and within the year (can go down in some periods), in times of high inflation, can be difficult to align with org budget, doesn’t consider “equity” as much – higher paid staff earn higher, lower paid staff earn lower, doesn’t reflect individual or team performance variances that are real

�

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Salary Increase Approaches�Standard Across-the-board Increase

Pros

Consistent increases each year
Aligns with market movement
Provides equality
Easy to administer and explain

Cons

Can be difficult to determine
May not align with economic movement
Doesn’t reflect performance

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A standard, across-the-board increase is a standard increase all staff get that is usually based on factors such as market movement or what’s feasible based on org budget.

Can be a flat percentage increase or flat dollar increase

A standard across-the-board increase is similar to a COLA, but usually based on other factors such as market movement of salaries paid at other organizations or what’s feasible based on budgetary restraints.

Can be rewarded in a percentage increase or flat dollar amount which has different implications based on the staff’s level of pay

Historically, market movement of salaries paid at other organizations has trended around 3% which is what most across the board increases are based on.

�Pros: Can make annual increases more consistent each year, attempts to align with market movement affecting the workforce, provides equality (if using %) and equity (if using $), makes it easy to administer and explain

Cons: Market pay is complex and difficult to determine what’s market pay increase for your organization year to year, in times of high inflation, usually doesn’t align with economic impact, doesn’t reflect individual or team performance variances that are real

�

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Salary Increase Approaches�Merit- or Performance-based Increases

Pros

Allows for pay differentiation
Can provide higher level of increase for some staff

Cons

Difficult to administer and explain
Requires sound performance evaluations
Equity concerns
May not align with market or economic movement

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A merit increase – or pay for performance increase – is an increase given to reward performance at work.

Usually based on individual performance, but can be based on team or org

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Salary Increase Approaches�Tenure or YOE-based Increases

Pros

Transparent
Attempts to align with market and economy
Minimizes subjectivity
Relatively easy to administer and explain

Cons

Equity concerns
Doesn’t reflect performance
Can become misaligned with market and economy
Difficult to manage exceptions

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Periodic increases within a grade from one “step” to another and is usually aligned with tenure or how long the staff member has been with the organization.

Very popular in union environments.

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Market & Economic Data for Salary Increases

For 2023, the CPI for All Urban Consumers increased to 3.7% from August 2022 to August 2023.
The Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans is expected to increase about 3.2% in 2024.
Some organizations are using local CPI or national SSI increases to adjust salaries.
Market movement on salaries paid at other organizations for 2024 estimated to be between 3.5-5%.

Group questions:

What level of increases are you planning to provide staff?�

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Determining Salary Increases

When determining salary increases, start with your anticipated budget.

What levels of funding are you anticipating?
What areas of the budget can be adjusted to support higher payroll increases?
How are other parts of the budget affecting your ability to increase salaries (benefit costs, taxes, funding expectations)?

Additionally, consider other implications on determining salaries (e.g., union contracts and board of director approvals).�

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While we’re not seeing the same levels of increases as we did in the last couple of years, not only are staff expecting to see similar pay increases, but there tends to be a sense that we’re still paying catch up. You might be thinking, how should our organization approach the amount of salary increases for this and next year?

When determining salary increases for your staff, start with your anticipated budget.

What levels of funding are your anticipating?
What areas of the budget can be adjusted to support higher payroll increases?
How are other parts of the budget affecting your ability to increase salaries (benefit cost increases, taxes, other things impacted by inflation, funding ebbs and flows)?

Doing this sets the stage for transparent conversations with staff about what went into decision making on salary increases.

If your organization is unionized, then salary increases are determined as part of a collective bargaining agreement. Today - we are not talking about CBAs - but one of the main reasons staff explore unionization can be salary increases - so it may be appropriate for you and your leadership to understand if you are conducting salary negotiations as part of or against the background of a conversation about unionization.

Boards approve the budget and salary increases are critical part of that budget - usually the largest single piece of the budget. It is important for the ED to ensure that the Board is aware and prepared to approve salary increases. Typically, Boards approve only a raise to the ED and let the ED determine salary of staff - but they do approve the budget. In multi-entity organizations, it is important for each board to understand what % of increase each entity is paying and how it effects the financial health of each individual entity AND the family of organizations.

�

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Determining Salary Increases (con’t)

Next, conduct research on market and economic movement in salaries.

Look at relevant salary surveys
Review CPI for your area or the SSI rate
Discuss with other orgs in your network. What are they doing?

Determine a few options and conduct an analysis on the impact of the budget.�

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Determining Salary Increases (con’t)

Finally, make the call.

Discuss with relevant leadership or board of directors (if appropriate)
Consider equity and values-based implications

Group discussion:

What decisions are on the table (or have been made) regarding salary increases in your org?�

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Bonuses

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Rewarding Bonuses

Nonprofits CAN award bonuses to their staff as long as their total compensation packages are reasonable.

Bonuses:

Are a great way to reward staff for performance while not committing the org to salary increases that are unsustainable.
Can be used in addition to salary increases as a way of sharing in the success of the organization with staff.
Should be a discretionary and not automatic.

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Considerations when Rewarding Bonuses

When thinking about rewarding bonuses, your organization should think about the following:

Typically, they should be provided in recognition of a staff member’s or the org’s extraordinary efforts or exceptional performance.
Should it be for some staff or all staff?
Equity implications for different levels of staff.
Tax implications on staff due to bonuses.
Emphasis on productivity and “working hard” and what that says to staff.

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Trends in Bonus Compensation at Nonprofits

In the most recent (2023) The Nonprofit Times Salary Survey, across participating organizations:

~50% of organizations pay bonuses
~75% of employees are eligible for bonuses
Bonuses make up 1.2% of total cash compensation (base + bonus)

At $50k salary, that’s ~$600
At $75k salary, that’s ~$900
At $100k salary, that’s ~$1,200

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Communicating Decisions and Managing Expectations

Key: Be transparent with staff about your decisions!

What went into your decision making?
What is the outcome and the impact it has on staff?
How does it align or not align with economic movement or staff expectations and why?
Are you planning to or providing additional rewards to supplement salary increase (benefits, bonuses, time-off)?

Staff are thinking: “How does this affect me?”

Consider other non-financial ways that your organization can show staff that they are valued (e.g., time off, new or evolved benefits, impact of non-election year work)

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When communicating organizational decisions on pay increases, the key is to:

Be transparent with staff about your decisions!

What went into your decision making?
What is the outcome and the impact it has on staff?
How does it align or not align with economic movement or staff expectations and why?
Are you planning or providing additional rewards to supplement the salary increase (changes in benefits, bonuses, time off, etc.)?

When it comes to compensation, staff are thinking: how does this affect me?

�Acknowledge how inflation and the economy may outpacing your organization’s pay increases.

Consider: Transparency and participatory budget processes. Discuss how things may be different year to year, and not automatic or an expectation.

Many nonprofits don’t have a lot of transparency with staff about their financial health or the tough decisions that management must make. Salary increases may not be feasible for your organization, particularly at the levels to align with this difficult market. In some cases, required salary increases by unions have required orgs to terminate staff to accommodate.

Every org has to develop their own culture around transparency and budgeting – the balance of transparency with staff vs. the need to keep staff motivated and not consumed with financial worries. Salary increases come in the background often in our spaces with a lot of secrecy about budgets and financial health.

If you can’t offer staff raises at the level they want or need, you may need to evaluate how you engage staff in the process of, or given them visibility into budgeting. This can be a very good values-based approach and aid towards building a leaderful staff.

Consider other non-financial ways that your organization can show staff that they are valued (e.g., time off, growth and development, new or evolved benefits, the cyclical nature of work on a non-election year and its impact, etc.). Flexible work arrangements and hours, generous healthcare plans, paid family leave, and four day work weeks top the list of benefits that workers care most about.

Many folks don’t think about the responsibility and value of educating and sharing with staff the other aspects for benefits. It’s your organization’s responsibility to be internal PR, essentially, selling the whole rewards package. Examples – total rewards summary or benefits presentation�

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Staff FAQs and How to Respond

“If salary increases aren’t aligned with inflation, I’m essentially getting a decrease in pay.”
“Inflation was higher earlier in the year, why are we just getting one increase?”
“I heard another org is giving higher increases to their staff.”
“We received a good amount of funding this year, why don’t we see this reflected in our increases?”
“There are benefits that I don’t care about, can we get that money in a salary increase instead?”
“Because of taxes, I’m receiving a much lower amount than you said you were providing.”

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Questions?

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Thank You!

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