ASU Lodestar Center Blog

Illustration by Yuxin Qin

Public policy and the nonprofit sector

Public policy at all levels of government has the ability to threaten the work of all nonprofits (National Council of Nonprofits, 2019). At the federal level, we see this threat in tax, regulatory, and spending policies. Notably, about 32% of nonprofit funding comes from government contracts and grants. The effects of federal policy often trickle down to the state and local levels. This creates implications for an organization’s beneficiaries in regards to available resources and funding for programming.

Despite the importance of public policy to the nonprofit sector, there is a severe lack of engagement among nonprofits. According to the National Council of Nonprofits, “compared to the business and government sectors, nonprofits have been sitting silently on the sidelines.”

Nonprofit leaders in 2020 are faced with the difficult challenge of recruiting and retaining employees for long periods of time. They are learning the ways different generations adapt and grow in the workplace and how to build an environment that helps the organization succeed. Leadership styles such as coaching, delegating, and directing, impact the leader and employee office relationships. It is important that the leadership teams understand their employees’ communication styles to further guide them in their positions. Leaders that empower their team to take on initiatives and pursue skill growth will develop a productive staff.

Research shows that there is high turnover as employees experience burnout from a lack of work-life balance, fair compensation and career growth opportunities. These leadership teams need to focus on the overall experience of mentoring their employees in the first year, as that is a critical time that impacts the employee’s overall commitment to the organization. Many nonprofit organization employees work in direct service fields, meaning they are hands-on and emotionally connected to the vulnerable population their organization serves in the community. They often have to be readily available and dedicate many hours toward fulfilling the mission, which can be emotionally exhausting.

For decades, the perception of executive pay at nonprofit organizations has been the image of a grossly underpaid executive director OR a scandalously overpaid CEO. But as the social sector matures, becomes more professional and finds meaningful ways to measure success, executive compensation is developing a new image. With the influence of engaged boards and thoughtful hiring and retention practices, nonprofits are poised to offer more competitive and attractive compensation packages than ever before.

Historically, executives at America’s nonprofits have felt pressure to take a nonprofit discount in pay in exchange for the psychic benefit of charity work. But is virtue truly its own reward? Does it compensate for lower compensation? As the line between sectors blurs, nonprofits compete more and more in the marketplace for top talent. Unlike the for-profit sector with their bottom-line focus on profits, nonprofits have a double bottom line that requires them to view all decisions (including hiring and executive compensation) against both a financial bottom line and a socially responsible bottom line. Limited resources, social pressures, and board biases may contribute to lower compensation. Even the IRS plays a role in determining what nonprofits can pay their executives.

Illustration by Jocelyn Ruiz