The Mighty Blog

The 5 Nonprofit Compensation Trends You Need to Know

Posted by Gary Romano and Abby King on Oct 4, 2018 1:12:39 PM
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At least once a week, we’re asked about compensation trends in the nonprofit world.

bigstock-Pay-Rise-Business-Vector-Conce-243096763It really isn’t surprising. Our Lean Recruitment clients want to hire the best talent they can while retaining as much of their hard-earned resources as possible. On the flipside, senior nonprofit leaders searching for their next opportunity through our subsidiary, AccessHR’s value-job search, want to land a rewarding position and fair compensation as well.

Here are five trends in nonprofit compensation we’ve observed in the past three years. We see these trends in the clients we work with most frequently—national, state, and regional organizations providing vital social and education services to vulnerable children, youth, and families. 

1. The Competition Isn’t Regional; It’s National

Currently, the U.S. is both blessed and cursed by a strong national economy. Unemployment has decreased to very low levels, meaning fewer people are seeking jobs; and salaries (especially for senior positions) are increasing. At the same time, the number of nonprofits in existence and their need for highly-qualified employees are also increasing, putting great strain on regional labor pools.

The result? We’re seeing more organizations that could previously fill job openings locally now need to search regionally—or even nationally—to find a strong pool of candidates. And this isn’t just the biggest organizations; it’s small to medium-sized ones, too. Nor is this trend only for new organizations trying to build their brand as an employer; 

we’re increasingly seeing well-known, successful organizations of 20, 25, and even 30-plus years struggling to find talent within their own state.

For employers, this means an increased need for targeted recruitment efforts. Organizations may need to “headhunt” the best talent—i.e., search out candidates who have a job and aren’t necessarily in the market for a new one. This process will require two things:

  • First, a deeper, more structured search. (For more on this, see our book, Lean Recruitment, or my blog, Go Pro.)
  • Second, higher salary offers aligned to national averages.

In high cost-of-living areas (typically, the East and West Coast states), this isn’t so shocking—these employers are already used to paying inflated salaries. But for those of you in lower-cost states, this will likely mean higher salary costs, especially for top senior-level talent.

Employers may also need to offer signing bonuses or pay relocation expenses to mitigate the cost of the right applicant moving to their location. To be clear, these benefits are not yet at the level generally expected in the for-profit world. But historically, these benefits—once considered typical for only the best-resourced organizations in the field (such as foundations)—are now becoming more commonplace among national and regional nonprofit organizations in need of specialized talent. For now, these benefits are usually under $10,000. However, as the practice becomes more commonplace and to remain competitive, nonprofits should expect to include them in job offers as well. It’s important to note that nonprofits may find it difficult to secure the funds to pay for such benefits, as few grants will cover relocation costs. Thus, it proves important to consider early on in the process how widely your organization is willing to look and what incentives you’re able to offer. 

If you’re currently a job seeker and willing to relocate, this trend may be great news: you can now command a higher national-level salary, even when working in lower cost-of-living regions! However, it may also mean that you’re competing for local positions with a more competitive, nationally-based pool of candidates. Accordingly, you’ll need to engage in a more strategic job search process. Even if you aren’t currently seeking a new job, it’s advisable to keep your LinkedIn profile and resume current so you’re prepared for the competition when an interesting opportunity arises. 

2. Specialization Is on the Rise

When Gary first started working with nonprofits in the 1980s, everyone was a generalist. The career path was simple—you learned the “trade” of your field (such as social work or education) and were then promoted based upon your growing set of content-relevant skills. For the most part, management and financial skills were deemed less relevant. On your way up the leadership ladder, you would develop these skills “on the job” or maybe through a general nonprofit or public management graduate program.

Though most nonprofits still draw leadership from the ranks of their field experts, the typical trajectory has begun to shift significantly. As nonprofits have grown in size and scope and government regulations and funding requirements become more complex, the demand for specialists with expertise in certain aspects of organizational and programmatic function has increased significantly.

Specifically, we’re seeing increased skill requirement expectations in positions related to fundraising, operations, financial management, and research and evaluation.

For example, we recently met with a client seeking candidates for a position that combines research management with practice implementation. The role was previously filled by academic professionals with a background in data analysis. However, as the organization has grown, they are now seeking applicants with experience in both research and practice in their given field. The transition makes perfect sense given the mission of the organization; however, it also means they will need to seek out candidates with a wider scope of experience and should expect to compensate accordingly.

The demand for increased skill sets is stripping the supply of talent in the nonprofit world. Accordingly, organizations are starting to look for potential employees outside of their field and even from the for-profit sector. The impact on the recruitment process is three-fold: higher salary requirements, more intensive search processes, and more clearly-defined recruitment strategies are all required. Conversely, many nonprofits don’t have the resources to staff recruitment personnel with the capacity to do this work.

For potential employees with a background in one of these highly sought-after arenas, this shift means great opportunity. Job seekers should now consider applying for positions outside of their field or sector.

3. Despite the Pressure, Salaries Still Vary Widely

Contrary to everything we’ve already highlighted, nonprofit salary ranges, especially for program management and leadership positions, still vary greatly in accordance with the organization’s size, budget, and revenue sources. The #1 question we get from clients on both sides—the searchers and the hirers—is this: “How much should we expect to pay / or I expect to make?”

We routinely conduct salary comparison studies for clients interested in developing an evidence-driven response to this question. Thus, we can readily confirm that the range of salaries offered for positions with the same title (such as Executive Director) can differ by tens of thousands of dollars, even within the same city.

When advising clients on launching a new talent search, we always recommend that if possible, the job announcement include an expected salary range. We have repeatedly found that this practice greatly benefits both parties: as the hiring organization, you won’t waste your valuable recruitment resources on candidates who are way out of your price range; and candidates won’t waste time applying for positions that aren’t a good financial fit. However, this may not always be possible. When this is the case, stakeholders can use a number of easily-accessible resources to determine an expected salary range, as either a job seeker or as a hiring organization.

First, we recommend checking job trend websites, such as Glassdoor (www.glassdoor.com), Indeed (www.indeed.com), and LinkedIn (www.linkedin.com). All these sites include search engines that allow you to look for average salaries according to title. Most of these engines also allow you to filter the result—for type of organization (for-profit vs. nonprofit), geographic location, overall budget, and organization size—to ensure you’re looking at comparable organizations. Of course, different organizations use varying titles for similar roles. To hit the full scope of possibilities, it’s important to collect data using a range of position titles. For example, if we’re trying to the establish the appropriate salary range for an Assistant Director, we’ll look at average salaries for Assistant Directors, Associate Directors, and Deputy Directors at comparable organizations to determine what a client might offer. At times, we may even recommend a shift in position title to more accurately highlight the scale of the position and better align to the salary they are able to offer.

Another great resource is the 990 tax forms from comparable organizations. Many nonprofits post these on their websites. Additionally, the forms are usually available for free through nonprofit databases such as GuideStar (www.guidestar.org). 990s always list the most recent compensation for the executive leader (including stipends given in addition to salary), and some will give salary information for assistant leadership as well. When conducting salary comparisons, we will often identify five to 10 local or regional organizations comparable to our client in mission, size, and budget and then pull the 990s to see how their leadership is being compensated. Even if the 990 only gives information on the Executive Director or President, their compensation level should allow you to make an educated guess as to how others in organizations are being paid.

When looking for comparable organizations to research, don’t forget that while you may start with examples in your city or region, you should also look nationally to see what competitor organizations in other areas are offering. We recommend getting a sense of salaries in other cities or regions with a similar cost of living, as well as major urban centers (such as New York, Washington D.C., or the Bay Area), especially if you plan to recruit on a national scale (see above!).

 4. You Can Leverage the Rise of the Side Hustle

Another robust trend we’ve noted recently: the rise of the side hustle. Specifically, we’re seeing more senior-level nonprofit employees negotiate the ability to start or continue a “side hustle” when taking a new job. This can take a number of forms. It might be the hiring agency informally (or formally) allowing the employee to work as an outside consultant while in their employ. These days, it’s not unheard of for nonprofits to reshape leadership positions to be four-day a week jobs so that senior leadership have time to devote to outside consulting.

The reason for this is pretty clear. As described above, many nonprofits are experiencing increased difficulty keeping up with the pressures of rising compensation costs. Side hustle opportunities often pay more per hour than the salaried “day job.” By allowing senior leadership to supplement their income with outside business, many organizations see a “win-win”—the agency doesn’t have to pay more for the talent they desire and the employee can earn money on the side to increase their overall income.

From the employer perspective, this may seem like a good option for attracting high-quality talent at a lower cost. However, it can also be extremely difficult to navigate logistically. When clients are considering this option, we always recommend discussing this unique relationship with your Board of Directors (even when your bylaws don’t require that they approve compensation packages) to ensure that expectations are clearly aligned across all stakeholders.

For employees, the side gig option can serve as an interesting negotiation point. Overall, nonprofit consulting is on the rise nationally. It is more common for nonprofit organizations to seek out leader expertise on a contract-basis than ever before, as documented in Gary’s 2016 book Small But Mighty, A Guide for Starting and Growing Your Nonprofit-Serving Consultancy. This option also allows you to begin building future opportunity should you ever choose to go into consulting full-time. It’s a nice perk to have should you ever lose your day job, as you know you’ll have the opportunity to bring in income while you search for another position. 

5. Cash Is Still King

The increase in demand for anything often leads to an increase in price. We are particularly seeing an increase in salaries for CEO/Executive Directors--but for senior resource development positions as well. In both cases, nonprofit organizations are getting more sophisticated in their operations and, in turn, their leadership needs. This demand, coupled with our nation’s record-low unemployment, means even more competition for talent and higher salaries.

But for many nonprofits, the “market-rate” CEO, Executive Director, and Development Director salaries are out of reach, especially as an ongoing cost. To bridge the gap, we are seeing a dramatic increase in the use of various bonus structures to provide a lump end-of-fiscal-year payment to these executives that increases compensation but not year-round.

We are primarily seeing two forms of bonuses:

  • Most common is related to performance—meeting specific goals, usually some or most of which are related to fund raising—to receive a variable award. For example, a CEO may get a bonus of up to 15% of her salary if she hits all five goals set by the board of directors.
  • Secondly, and less commonly, we are seeing bonuses that are not really bonuses, but deferred compensation. That is, the senior leader needs to hit “easy” goals or just remain in the position to receive a set amount of compensation at year’s end. For example, an Executive Director gets 10% of her salary at the end of the year, regardless of performance.

The appeal of these bonus structures is twofold:

  • First, it provides time for the organization to raise the money. By doing it end of year, especially as part of a board-driven performance review, many boards find their members will provide additional donations in gratitude for the year’s performance—funding that may not be provided year long when the outcome of the leader’s activities have not yet been realized. 
  • Second, in many cases, the performance is what provides the funding—that is, by hitting fund-raising goals, the senior leader generates the revenue to cover the bonus (rather than having a higher salary all year with no certainty of fund raising to cover it). 

Research Required

Overall, the biggest takeaway is the increased need for a well-honed recruitment strategy. Whether you’re looking to hire or currently seeking your next position. Given the level of competition on both sides of the equation, it’s critical to start thinking outside of the traditional box when considering recruitment options. In turn, this means an increased need for effective vetting of candidates on the hiring side, as well as marketing on the seeker’s part. For example, we’ve recently found some great candidates for our nonprofit clients by going outside of the sector and headhunting individuals from large, for-profit evaluation firms as well as smaller academic institutions. Both can be fertile ground for finding individuals with the highly specialized skill sets our clients seek. However, we’ve also found that these candidates need to be extremely well-vetted to ensure they are a good fit for transitioning sectors. Individuals used to a high level of institutional support and larger organizational budgets may not be adequately prepared for the realities of grant-funded operations. That said, job seekers who can bring extensive skill sets and demonstrate a track record of operating within constraints may be able to negotiate a significantly higher salary and title position, if willing to make this transition.

Our last piece of advice: commit to continuous searching—what we refer to as “Always be looking.” This is sage advice on both sides of the hiring table. As an employee, you should continuously seek additional opportunities with interesting organizations, even when you’re happy in your current role. You never know when your dream job might become available with fierce competition awaiting you. This is especially true if you don’t want to relocate, as a limited market in your region is probable. As a hiring organization, it’s critical to always be on the lookout for strong candidates who bring skill sets beneficial to your agency, even if you’re currently without openings. Unexpected resignations by top leadership can throw even the most seasoned organizations into chaos if not prepared; by keeping on top of the candidate pool, you can greatly mitigate the impact of unforeseen and unfortunate circumstances should they occur.

Please reach out if you would like to discuss these trends, you can schedule a free consultation below to talk with one of the authors, Gary Romano.

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Topics: nonprofit, talent, business models, What every CEO and ED should know, jobs

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