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ASU Lodestar Center Blog

Research Friday: Controversial Nonprofit Compensation: Are We Missing the Point?

Welcome to Research Friday! As part of a continuing series, we invite a nonprofit scholar, student, or professional to highlight current research reports or studies and discuss how they can inform and improve day-to-day nonprofit practice.

We often talk about nonprofit executive compensation in skeptical terms: how much is too much? While no one supports wasteful public spending or abuse of power, the cases that grab headlines and provoke legislation are actually far from the norm. At Nonprofit Finance Fund (NFF), what we see far more often is staff turnover due to burnout and low pay. We routinely work with nonprofits that are struggling to determine if it’s financially possible to make a much-needed new hire, even on a part-time or contractor basis. This week’s installment of Research Friday will examine a range of new data from the field about our sector’s human resources—often, our most powerful but undervalued form of capital.

First up: The Chronicle of Philanthropy’s recent survey  of more than 900 young nonprofit professionals. With help from the Nonprofit Leadership Alliance and the Young Nonprofit Professionals Network (YNPN), The Chronicle found that many of the sector’s young workers “can’t afford to stay in their positions” because their salaries (often starting out in the $25 to $35,000 range) are no match for their student debt. Over time, low pay has real consequences for the sector in terms of talent. Case in point, YNPN’s 2011 survey of young nonprofit workers found that “commitment to remaining in a nonprofit job weakened as employees got older.” When asked to indicate the reason for leaving, over 90% of respondents cited burnout, although low salary and wages (82%), lack of career advancement (69%), and job related stress (69%) were also major contributors.

A certain amount of turnover is natural and to be expected. Life happens. Things change. But there are real program and financial dangers inherent to “churn” –i.e., spending precious time and resources searching for, interviewing, hiring, and training new candidates in the face of cyclical employee turnover. Simply put, well-trained staffers produce better mission outcomes; a new staff member will never be as effective as one who’s been in the job for a year. While their salaries may grow over time, there are countless efficiencies that can result from retention, not least of which is decreasing the administrative and financial burdens of employee attrition.

So why does churn seem so common to our sector? The answer lies, in part, in the general economic outlook for nonprofits: NFF’s 2012 State of the Sector survey showed that demand for services is markedly up, while the funding to meet these needs has not kept pace. As my colleagues at NFF recently blogged, “There is the well-known cultural expectation that nonprofit workers contribute their ‘sweat equity’ toward the organization’s mission.” In the charitable sector, we all understand the need to do more with less. But when a social worker’s caseload increases past her reasonable limits or when a domestic violence counselor must constantly work longer hours to prevent clients from being turned away, burnout is looming and churn is not far behind.

The incentive for achieving mission success only works for so long, especially as the economy forces nonprofits to become increasingly creative in the ways that they budget for human resources. Amid limited signs of recovery, NFF’s survey of 4,600 organizations nationwide showed that in 2011:

  • Nearly 1 in 4 organizations (23%) had to reduce staff 
  • 1 in 5 nonprofits (21%) reduced or froze salaries
  • While 12% said they increased employee benefits, just as many (11%) had to cut benefits
  • 1 in 10 respondents actually mandated furloughs or reduced staff hours to cut costs
  • A significant number of nonprofits (38%) reported that they relied more heavily on volunteer labor

Obviously, there are many reasons that people choose the not-for-profit route and pay is rarely the motivating factor. In today’s economy though, less people have the luxury of relying on a partner’s salary in order to take lower pay for “meaningful” work. What’s more, although 73% of nonprofit workers are women, The Chronicle’s recent survey shows that the sector’s known gender pay gap exists even among young, entry level workers. Within this context, it’s easy to see why turnover persists. Nonprofit HR Solutions, a consulting firm, conducts an annual survey of human resource trends among nonprofits. In 2011, 35% of respondents said that “direct service” positions—i.e., health and human service workers, social service providers, etc.—are experiencing the greatest retention challenges. 

In brief, the numbers don’t look good. Perhaps instead of focusing our attention and outrage on one executive’s high compensation, we should actually be discussing the implications of improving pay and benefits for nonprofit workers. Not out of greed, or even fairness, but out of necessity. Without some real changes to our system, we will continue to drive idealistic, talented, educated people away—the very people we need to keep on board if we are to solve the existential crisis facing our sector.

Angela Francis  is a Senior Associate at Nonprofit Finance Fund (NFF). As a 501(c)(3) nonprofit, NFF pushes for improvement in how money is given and used in the sector. Since 1980, we have worked to connect money to mission effectively, so that nonprofits can keep doing what they do so well. NFF provides financing, consulting, and advocacy services to nonprofits and funders nationwide.


ASU Lodestar Center Blog