Nonprofit Information

Cory C. Grant

Nonprofit CFOs: Keep Your Staff Engaged With These 3 Tips

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The nonprofit sector is the third-largest employer in the United States and continues to grow, so it is more crucial than ever for business owners to boost job satisfaction and retention. The good news is most nonprofit employees are happy (85% are satisfied, highly satisfied, or extremely satisfied). Nonetheless, any CFO’s goal should be to shift the standard from simply satisfied to truly engaged so staff will stay on at the organization.

What Does Engagement Entail?

Engagement in a broad sense can be defined as a level of commitment and involvement. While satisfaction is often used interchangeably,

Nonprofit CFO Advice - Nonprofit Leaders

engagement extends further. Employee engagement requires willingness to expend extra energy and time toward achieving the organization’s goals, and the employee must also believe that those goals mirror his or her own. This is especially important at not-for-profits, given their limited resources and smaller budget when compared to their for-profit counterparts.

The challenge for nonprofit C-level staff is to create an organization where employees are engaged and stay for the long-term. But in order to make changes, you need to know what can and needs to be changed. Although 90% of business executives understand the importance of retaining staff, less than half have any idea of how to do it. The necessary responses are multifold, but the following 3 areas should be significant considerations for those directing a not-for-profit organization.

1.     It Starts at the Top

As the business owner or director of a nonprofit, you need to demonstrate the value of engagement yourself first. According to Dr David Dye of Deloitte Consulting LLP, “When the CFO leads on an issue, it gets more attention than when it’s sponsored just by HR.” If you want your staff to be engaged, you have to be their example. Every day. Inspire your employees with your words, communication, and action. This is essential for creating a real culture of engagement for your organization.

But it’s also vital that engagement with the work and other employees trickles down throughout the organization. If managers below the C-level don’t all seem committed to functioning as a team with the staff they are responsible for, your example will make a limited impact. The problem is, your managers may not realize this, or they may not realize that they’re not doing this effectively.

Managers have a habit of overestimating just how effectively they communicate on a daily basis with their employees. 87% of supervisors stated they had an open-door policy, while just 64% of employees agreed. Though 68% of managers stated they consistently held meetings, only 45% of their employees reported that they met their managers on a regular basis. Engagement has to flow down the command chain on a daily basis for all staff to see it and start to embody it themselves.

2.     Making Your Mission Key

Passion separates employees at nonprofits from other industries; “A strong affinity for the organization’s mission” continuously rates as the top relationship to an employee’s job satisfaction in nonprofits, whereas it ranks 20th out of 25 factors in for-profit sectors. This is a real edge for nonprofits, as it’s been proven that mission-driven companies have a 40% higher level of staff retention. The key is to bring your mission to the forefront of your operations so that your employees can really appreciate it, connect with it, and become more engaged with work as a result.

And it’s not just about what your not-for-profit is trying to do for society. How your organization operates on a daily basis is of great importance to your staff, too. This is why it’s essential to ensure you have the right culture in place. The organization’s culture will be determined by the values that are expressed by leadership, as we have previously discussed. So, the desired beliefs of the nonprofit must be clearly stated, reinforced, and celebrated. When an employee acts in a manner consistent with those desired core values, management should recognize and praise that employee. This is especially true as more millennials (18-35 years old) enter the workforce, for whom “positive culture” and “a calling in work” are vital mindsets. If team members think they’re on the right track, they’ll enjoy a boosted morale – while your nonprofit enjoys better staff retention rates.

3.     The Many Forms of Compensation

Without putting too fine a point on it, money matters. Nearly half of employees report dissatisfaction with their pay given their skill set and effort exuded. You should strive to match individual wages with expectations and needs. But studies have also shown that while increasing wages to meet employee expectations drastically improves morale, boosting wages beyond that level has a flat effect on job satisfaction. In other words, employees find it more important to be appropriately paid than to make more money overall.

Given the difficulty and apparently limited effectiveness of increasing nonprofit salaries, CFOs should explore alternative financial vehicles for staff retention. The Merrill Lynch Retirement Study reports that younger employees are going to become more dependent on their savings and investments, as opposed to social security, to support themselves during retirement. By offering retirement and death benefit plans, nonprofits can tap into staff needs, and retain key talent without having to augment pay.

Customized financial wellness programs are another potential offering. With their individual tailoring to each employee’s situation, these programs can save staff a considerable amount of money. Not only does this create goodwill towards your company and encourage employees to stay on, but it doesn’t bite into your equity either. This kind of cost-effective retention solution is ideal for a cash-strapped nonprofit organization.

Encouraging Engagement for the Future

This checklist is but a start for CFOs who want to lead a nonprofit where enthusiastic employees work hard, emulate a culture of engagement, and stay on. The best part is, none of these changes cost you any of your equity.

But don’t overlook these tips as quick fixes for later. Only 55% of nonprofit employees plan to stay with their current organization beyond the next two years. Make sure that’s not the case at your not-for-profit by giving your staff the right example, the right mission, and the right benefit package today.

Where do you see a need to improve at your nonprofit? Let us know in the comments section.

Setting Salaries to Grow Your Nonprofit

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Nonprofit SalariesThe salaries of nonprofit employees – especially those of executives – tend to draw more scrutiny and controversy than those of the private sector.

As tax-exempt organizations, nonprofits should establish a series of best practices for selecting salaries. For nonprofit managers, this involves understanding regulatory restrictions, and creating a documented path to provide proper compensation for each member of the organization.

The guidelines below will aid you in defining value for your team members, while protecting your nonprofit from unfortunate IRS penalties.

Do Legwork, Not Guesswork

If you’re in a management position at your organization, we can be sure you’ve got a bright mind. Unfortunately, that’s not enough for you to define what qualifies as an appropriate salary level for every position.

The NonProfit Times crunched the numbers in 2014 to find average salaries for 236 positions within nonprofit organizations. Can you guess how much an average Chief Marketing Officer made in a year? What about a graphic artist? The answers were $110,000 for the former and $45,000 for the latter. If your guesses weren’t within $2,000 of the real answers, you may need some calibration to your salary clairvoyance.

Assuming, estimating, and even relying on your own past experience are all faulty methods for determining the appropriate salary for your employees. Spend time doing the work necessary to compare what other nonprofits offer for similar positions, and create a salary range flexible enough to adapt to variances in experience and market demand. You may want to purchase surveys that show average wages and benefits for nonprofits, especially those of the same size as yours. Survey information generally doesn’t cost much, and you can utilize these surveys to further analyze other positions within your nonprofit, and scour for wage gaps within your organization.

Plan Ahead for Raises

The legwork in the above point will help you determine initial salary levels — but as time goes on, you’ll also need to offer sufficient raises to hardworking employees. Create a consistent set of benchmarks that work for your nonprofit, and apply them to all positions across the board. You may not be able to reach industry standards in your first year or two, and not every employee will agree with the standards you have set, but having a documented and concerted plan will save you plenty of grief in the future.

Assess your current staff, and determine whether or not each person’s absence would greatly affect the team’s output or efficiency — especially knowing what you do about the market value for each job title. This exercise will help you identify exactly who should be given raises first (and soon), before they leave for better-paying positions at other organizations.

Explore More Benefits

Too many managers seem to forget the significance of benefits packages. There are a lot of ways to attract and retain employees beyond increasing salaries. Your staff may appreciate the flexibility of their schedules, or the amount of vacation/sick days they are granted each year. Some nonprofits truncate their schedules in the summertime, or make Fridays work-from-home days. Others provide occasional staff lunches or treats, as fun morale boosters. These benefits aren’t intended to replace a bump in salary (these perks shouldn’t be used in place of a raise), but they can be powerful complementary pieces to include in your compensation plan.

For executives, benefits may include a company-covered car, reserved parking, or travel expenses for a spouse or partner. Benefits can also help employees plan for the future, through supplemental insurance, retirement plans, or company-provided financial counseling. Explore all of the options available and consider which ones may offer the most value to your key employees.

Follow the Law to Avoid IRS Punishment

While you seek to employ the best in their field — and often that means offering competitive wages — your nonprofit’s salary packages must fall under IRS guidelines for reasonable compensation. That means you can’t get overly generous with your salary offerings to key executive employees. Punishments can include revocation of tax-exempt status, or (more likely) hefty intermediate sanctions.

Intermediate Sanctions

An intermediate sanction is an excise tax imposed upon a “disqualified person” who receives an unreasonably large salary and the person(s) who authorized that salary. A “disqualified person” must be in a “position to exercise substantial influence over […] the organization.” This includes executives, board members, other substantial contributors, and family members of the aforementioned list.

The specific excise tax imposed is 25% of the excess amount, with a further penalty of 200% if the first sanction is not paid on time. The managers responsible for permitting the unreasonable salary are punished with a 10% excise tax of the excess amount, up to $10,000 per transaction.

Demonstrating Reasonableness

The good news is the IRS presumes compensation is inherently reasonable unless proven otherwise, so long as the nonprofit abides by standard procedures — known as a “rebuttable presumption of reasonableness.” The spirit of reasonable compensation is that enterprises in the same position as yours would similarly value the role in question.

As long as a nonprofit provides documentation explaining its basis for the salary, uses “appropriate data” (see below) to select the salary, and approves the salary by an authorized body within the organization, the requirements for reasonable compensation have been met. The IRS shoulders the burden of demonstrating otherwise. Nonprofits would be wise to accrue the comparability data, authorization, and documentation in advance of the compensation approval, to further protect themselves from an IRS inquiry.

What’s Appropriate Data?

Using “appropriate data” refers to utilizing comparative studies (undertaken by the nonprofit itself or a third party) to determine benchmarks for salaries, corresponding to the value of the position. For organizations with $1 million or less in gross receipts, compensation for similar positions provided by three comparable organizations fulfills the definition of “appropriate data.”

Forms 990 and Part I of Schedules A (filed with the IRS and open to public acquisition) often provide the necessary figures to determine reasonable benchmarks for nonprofit salaries. Note that nonprofits may, at their discretion, use for-profit organizations to determine market rates — as long as the job title, organization size, and organizational mission are similar in nature.

Setting Accurate Salaries Draws Great Staff

Analyzing salaries is never the most pleasant of discussions, but if you don’t strategize for who you are paying and how much, you risk losing your best employees. Nonprofit workers naturally love the opportunity to fulfill a mission that provides for their community or society; but they can’t work underpaid for long. Establishing salary guidelines and precedents for raises not only bolsters feelings of goodwill within your nonprofit, but when done appropriately, maintains public trust and lessens risk for your organization.

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