Total Rewards Programs in Nonprofit
Organizations
I.
Total
Rewards: Integral to Organizational
Strategy
a.
Compensation
strategy and organizational mission
i.
Require individual
employees to set performance objectives that are based on department goals
ii.
Workers should be
paid for what the organization wants to reward
b.
Need for a
Rewards Policy—simple, short statement of how organizations plans to reward
people, including
i.
Pay, benefits,
work environment
ii.
Design &
maintenance of system
iii.
Philosophy of what
rewards are supposed to accomplish
iv.
Statement of
treating everyone equitably
c.
Using consultants
i.
Wide range of
experience
ii.
Access to vast
amount of salary and benefits survey data
iii.
Objectivity
iv.
Consider certification
program of WorldatWork (formerly American
Compensation Association)
II.
Traditional Base
Compensation Principles
a.
Job- or
Person-Based Systems
i.
Needs to be
determined organization-wide
ii.
Few have
completely abandoned convenience of “the job”
b.
Job or Work
Analysis
i.
External
competitiveness & internal equity
ii.
Process:
1.
interviews
2.
observations
3.
checklists
4.
open-ended
questionnaires (usually defined to fit values and goals of organization)
c.
External
competitiveness
i.
Has moved to
front of line in pay system design
ii.
Includes competition
with for-profits (relevant labor markets)
iii.
Benchmark data
(from comparable organizations)
1.
data easily found
in other organizations
2.
stable
3.
represents all
levels within organization
4.
vary in levels of
compensable factors
5.
multiple
incumbents
6.
should include
jobs which have been difficult to recruit
iv.
Salary data (from
published surveys or original data)
1.
should report
average salary, weighted average, minimum, maximum, median (weighted average
most useful); and effective date of survey
2.
any large
discrepancy among these measures could indicate a skewed (and therefore
unrepresentative) sample
3.
“role” analysis defies salary survey.
d.
Internal equity—perception
of fairness in pay for various jobs throughout the organization. Established through “job evaluation”
i.
Slotting
ii.
Point-factor job
evaluation
1.
identify and
weight a set of factors that uniquely describe each job
2.
Establish levels
within each factor and assign points to each level
3.
Compare each job
to the factors and assign points appropriate to each factor level
iii.
4 basic concepts
(skill, effort, responsibility, working conditions)
iv.
Top management
and Board should be involved in choice of factors
v.
Levels should be
identified with “or equivalent”
1.
permits
flexibility in staffing
2.
provides some
protection from legal liability
vi.
Benchmark jobs
are evaluated first
vii.
Resulting
hierarchy of jobs should be reviewed with department manager (although not the
points) to verify placement
viii.
Regular system of
review should be established
e.
Building
externally and internally equitable salary structure
i.
Reconcile contradictions
between data
ii.
Pay level policy
iii.
Structure the
structure
1.
minimum, maximum,
control point [midpoint]
2.
control point is
salary range that is keyed to organization’s response to the market
3.
employee who
meets expectations for the job should receive the value of that job on the
market
4.
control point
allows organization to control costs around its policy toward the salary market
iv.
Range
spread: traditional vs
broadbanding
1.
broadbanding allows more flexibility
2.
broadbanding does not have control points (although “shadow ranges”
within bands may be described)
v.
Constructing
grades or bands (“Control point progression,” as a percent of the lower grade’s
control point)
vi.
Maintaining the
structure (market must be checked annually)
vii.
Common issues
1.
“red circle”
employees—paid well above market; pay may be frozen (supplemented with lump-sum
performance bonuses)
2.
“green circle”
employees—paid well below market; bring rate up to new minimum ASAP
3.
may create severe
inequity for long-term employees
viii.
Other salary
administration policies
1.
salary impact of
transfers
2.
promotions
3.
demotions
4.
reclassifications
5.
merit systems,
pay-at-risk plan
f.
Communicating
Salary Plans
i.
Job description
& how obtained
ii.
Method by which
jobs are evaluated
iii.
How market data
are collected and analyzed
iv.
How performance
relates to pay
v.
How performance
is measured and appraised
vi.
Administrative policies
and procedures
vii.
Benefit plans
III.
Incentive pay in
Nonprofits
a.
Initial
principles
i.
Incentives should
be used only if they can be based on improvements to the organization’s
financial condition, either generating revenue or enhancing cost savings
ii.
Incentive performance
should be measurable and achievable, and should include nonfinancial
measures
iii.
Amount of
incentive must be enough to “make a difference”
iv.
Incentives should
be awarded only to employees whose performance is above average
b.
Types of
incentives
i.
Short-term bonus
ii.
Spot awards
iii.
Gainsharing programs
c.
Nonfinancial incentives
i.
Flextime
ii.
Awards
iii.
Clothing/items
with organizational insignia
IV.
Executive Pay in
Nonprofits
a.
External competitiveness
plays larger role
b.
Link bonuses to
i.
Operational cost
savings
ii.
Program ratio
(amount spent on delivery of service to total expenses)
iii.
Balanced
scorecard approach
V.
Benefits
a.
Initial
considerations
i.
ii.
Must consider what
types and levels of benefits the employees want—use surveys or other data
iii.
Flexible benefits
(“cafeteria plans”) may be useful.
b.
Health Care
i.
May provide
pro-rated coverage for part-timers
ii.
Managed care
programs (HMOs, PPOs, POSs)
iii.
Cost containment
strategies (copayments & deductibles, preventive
care, accurate billing, second opinions)
iv.
New strategies
(purchasing coalitions, vendor information, flexible benefits plan, negotiating
with providers, preadmission certification)
v.
Defined
contribution plans
c.
Retirement Plans
i.
In past, 50-70
percent of pre-retirement income; now 80-100 percent
ii.
Coordination with
social security is part of the planning—and insecurity
iii.
Defined-benefit
plans
iv.
Defined-contribution
plans
d.
Paid time Off
(demographics of employee base may play a role)
e.
Tuition reimbursement
(gear to a career development philosophy
that helps accomplish organization’s hr strategy)
f.
Communication of
benefits to employees
i.
ERISA requires
annual summary of plan description covering retirement benefits
ii.
Listen to
employees
iii.
“events-centered”
communication to employees
iv.
Build understanding—personalized
reports, use graphics & illustrations, communicate face to face regularly
v.
Gain employee
trust
vi.
Ensure that
benefits communication budget is adequate (2-3% of total cost of benefits)
VI.
Justifying
Rewards Costs to Directors
© 2004 A.J.Filipovitch
Revised 2 October 2005