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ASU Lodestar Center Blog

Why Invest in Nonprofit Human Resource Infrastructure?

How will investing in nonprofit Human Resource infrastructure promote stronger leadership, quality staff retention, and sustainable community support?

It is no question that the nonprofit sector lacks the internal infrastructure that the government and for-profit sectors have built. Most of the time nonprofit agencies are looked down upon if their program ratio does not show extremely low overhead costs. Many donors view funds spent in the areas of administration as wasteful and taking away from the mission.

It's time to stop obsessing about overhead and start focusing on progress. Change charity, and charity can change the world.” -Dan Pallotta

The truth is, by not accommodating internal growth in areas such as Human Resources, the agency will suffer more in the long term and be unable to serve the mission as effectively. I argue that small investments in strategic areas of nonprofit Human Resource Departments will assist agencies in being more supported by their communities, receiving higher funding, and attracting higher quality staff members.

The four recommendations to implement Human Resource Best Practices are as follows:

  • Recommendation 1- Nonprofit HR and finance departments should accurately report on program and overhead costs annually on the 990 forms. This ensures an accurate picture of all organizational required costs. Being transparent with costs in all areas of the agency will provide longer term success because infrastructure will be able to grow as the mission and work grow. Cuts backs in these areas leave organizations living within what is referred to as the “starvation cycle”. “The starvation cycle is a phenomenon that has been described as a debilitating trend of under investment in organizational infrastructure, fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses” (Lecy & Searing 2015).
  • Recommendation 2 - Nonprofit HR and finance departments should create and implement safe guards that protect the agency’s financials and public reputation. This will allow the agency to thrive while maintaining or growing a robust internal structure as needed. Internal safeguards should include background checks of all employees, separation of duties, a system of authorizations, formation of an audit committee, avoidance of overreliance on one individual, board oversight, and a fraud response plan (Gallagher & Radcliffe, 2002).
  • Recommendation 3 - Nonprofit organizations should create HR structures that promote high employee morale, as well as create a positive work environment that attracts and retains high performing professionals. “When an individual identifies with the organization’s values, the attraction, retention and motivation of employees improve” (Boyd & Gessner, 2013, p.4).
  • Recommendation 4- Nonprofits should create strong discretionary benefits packages within HR departments. “Public and nonprofit employers know that to be competitive they need to offer benefits beyond those mandated by law. Research indicates that integrated benefits programs increase productivity, decrease turnover, increase the effectiveness of recruitment and retention programs, and assist in developing employees’ loyalty to the organization” (Pynes, 2013).

The implementation of these practices within nonprofit HR departments has been shown to result in stronger executive management, higher quality staff retention at all levels once recruited, and an ability to provide a transparent picture of positive internal safeguards that ensure the organization’s financial safety and positive reputation.



-Boyd, N.M., & Gessner, B. (2013). Human resource performance metrics: Methods & Processes that demonstrate that you care. Cross Cultural Management: An International Journal 20 (2), 251-273

-Gallagher, M., & Radcliffe, V.S. (2002). Internal controls in nonprofit organizations: The case of the American Cancer Society, Ohio Division. Nonprofit Management & Leadership

-Garven, S. A., Hofmann, M. A. and McSwain, D. N. (2016), Playing the Numbers Game. Nonprofit Management and Leadership.

-Lecy, J. D., & Searing, E. A. M. (2015). Anatomy of the nonprofit starvation cycle: An analysis of falling overhead ratios in the nonprofit sector. Nonprofit and Voluntary Sector Quarterly, 44, 539-563.

-Pynes, J. E. (2013). Human resources management for public and nonprofit organizations: A strategic approach (4th Ed.). San Francisco: Jossey-Bass.



 Caitlin graduated with a Master of Nonprofit Leadership and Management from ASU in May 2016.


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