AWB 2004 Nonprofit HR Conf

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Introduction to CompensationDispelling the
Myths about Nonprofit Compensation Plans

2004 Nonprofit Human Resources Conference Presente
d by Dianne Burt-Green, SPHR MBL Group, LLC
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Introduction to Compensation

• An Overview of Todays Presentation
• Myths about Compensation in a Nonprofit
  Organization
• 10 Steps to Developing a Solid Compensation System

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Compensation Myths

• 1 We dont pay competitively because were
  nonprofit!
• 2 We cant compete with for profit
  organizations with pay
• 3 Incentive plans wont work in a
  nonprofit organization
• 4 We are destined for high turnover because we
  cant afford to keep our people
• 5 Our glass is always 1/2 empty

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Introduction to Compensation

• Compensation Is
• Check ( ) one
• An Art ???
• A Science ???

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Nuggets from 100 Best Cos

• 5 Reward Categories
• Direct financial rewards (pay)
• Indirect financial rewards (intrinsic/extrinsic
  benefits)
• Work content (the work itself)
• Careers (long term opportunities for development
  / advancement)
• Affiliation (the feeling of belonging)

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Strategic Compensation

• A strategic compensation system should form a
  visible link between organizational objectives
  strategies and business metrics, while balancing
  the expectations of its employees with the costs
  to the employer, AND
• Fluid and flexible enough to meet changing
  economic and market conditions

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Compensations 3-Legged Stool

• Whats happening in the external market?
• Whats happening internally?
• The organizations ability to pay!

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2 Categories of Compensation

• The tools normally used to meet compensation
  objectives fall into 2 major
  categories
• I. Direct Compensation
• 1. Base salary
• 2. Premiums (overtime, shift differential,
  lead, buddy pay)
• 3. Incentives (a.k.a. bonuses)

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2 Categories of Compensation

• II. Indirect Compensation
• 4. Employee benefits
• 5. Deferred compensation
• 6. Non-economic compensation
• NOTE The priority placed on each element, as a
  percentage of total compensation, varies with
  income level

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Step 1 - Audit Your Comp System

• Begin by assessing the elements of your current
  compensation system

• Philosophy
• Policy
• Job descriptions
• Job evaluation method(s)
• Base pay structure(s)

• Performance management
• Short or long term incentives
• Total compensation
• Communication Plan

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Step 2 - Philosophy

• Start by asking
• What is your organizations
• PHILOSOPHY
• on compensation?

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Philosophy

• Facilitate discussion(s) with your Board /
  Funders AND Sr. Leadership on the goals of the
  compensation system
• cash / benefit mix?
• market position (lead? lag? on par?)
• role of performance in the pay system
• how will the compensation system be supported in
  the future?
• other pressures on compensation system (org
  culture, demographics, geographies, legal issues)

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Philosophy

• What is our organizations mission? Vision?
  Values?
• What business(es) are we in?
• How are we the same or different from others in
  our industry sector?
• Where is our organization in its life cycle?
• Who is our competition?
• Who are the stakeholders in our organization?

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Step 3 - Compensation Policy

• Develop a Compensation Policy which will
  communicate and guide compensation decisions
• confirms the organizations philosophy
• outlines compensation administration and
  methodologies
• identifies policy administrator and review
  procedures
• assigns management responsibility and
  accountability

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Step 4 - Job Descriptions
What is a Job Description? A job description is
a formalized statement of the duties,
qualifications, and responsibilities of the job,
based on information obtained through job
analysis. Its purpose is to identify the job,
define it within certain established limits, and
describe its scope and content. It may include
information on working conditions, tools and
equipment used, and relationships with other
jobs. It should be written so that is has
relevance for the employment processes, pay,
employee communication and evaluation, as well as
compliance.
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Uses for Job Descriptions

• Assign work
• Communication tool - mission, staffing,
  promotions, performance expectations
  management, training
• Compliance with Wage Hour laws reasonable
  accommodation

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Step 5 - Job Evaluation

• Compensable Factors -
• Job Knowledge
• Interpersonal Skills/Contacts
• Supervision of Others
• Work Independence
• Physical Requirements
• Working Conditions

• Creativity/Innovation
• Supervision Received
• Leadership
• Decision Making
• Planning
• Sphere of Influence

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Step 6 - Base Pay

• Establish a base pay plan consistent with your
  compensation philosophy
• Understand the market
• Your world
• Your geography
• Test your strategy with your nonprofit sector and
  other related sectors

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Methods of Base Pay

• Market based
• Random
• Single/flat rates
• Start job rates
• Longevity / step rates

• Skill-based pay
• Merit plus lump sum award
• Step rates
• Broadbanding
• Team pay

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Sources for Pay Data

• Credible
• Third party salary surveys (Milliman, Abbott
  Langer, Mercer, Wyatt, CEA, MBL)
• Customized surveys (eg., TACS / NPF / UW)

• Not So Credible
• Parade Magazine
• Internet (I want a raise.com)
• Exit interviews

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2004 Market Trends

• Salary / Merit Adjustments
• All Industry Non-Profit
• Executive 3.9 4.1
• Ex/Nex 3.5 3.4
• Pay Structure Adjustments
• All Industry Non-Profit
• Executive 2.6 2.8
• Ex/Nex 2.6 2.7

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Step 7 - Performance Pay

• If you ignore performance, something else will
  get rewarded
• S. Bhagat, Univ. of Colorado
• For every action, there is an equal and opposite
  reaction
• Newton

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Performance

• The ultimate goal is to develop staff and reward
  individual / team achievements to ensure the
  organization achieve its goals objectives

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Performance Pay Comp Principles

• Learn to assess performance
• Establish individual goals and objectives tied to
  organizational / unit goals objectives
• Conduct regular / periodic Reviews
• Award compensation based on achievement of results

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Step 8 - Incentive Comp

• Incentives impact/drive
• behavior . . . . .
• what behavior are you trying to achieve?
• Seek ways to inspire individual greatness in the
  mission of achieving organizational greatness!

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Incentives by Org. Life Cycle
Base Salary and Short Term Incentives
Base Salary and Benefits
Short and Long Term Incentives
Equity Based, Long Term Incentives
Start Up Growth Mature
Sunset
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Types of Incentive Pay

• Bonus Plans
• Small Group (teams)
• Individual - sales, transactions
• Organization wide
• Gain Sharing / Profit Sharing
• Annual Work Plans
• Spot Award
• Technical Achievement - research
• Key Contributor / Key Contributions

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Step 9 - Total Compensation

• Total rewards
• Philosophy
• Base Pay
• Benefits
• Incentives / Variable Pay
• Culture / Work Life Balance
• Performance
• Communication

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Step 10 - Communication

• Communicate
• clearly
• frequently
• with sincerity
• Even if you think they already know . . .
• Communicate, communicate, communicate!

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Step 11 . . . .

• Repeat Step 1
• Annually
• As often as market conditions dictate

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Your Real Job is to . . .

• Approach compensation in a holistic manner so as
  to . . .
• Dispel those myths!!

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Introduction to Compensation

• Thank you for your attention!
• Questions?