Greetings from Austria,
Thomas

My background is not IT, so I’m coming at this topic without the benefit of that experience…which I guess is what my friend, Devin, was telling me when he corrected some of my assumptions.

My first thought was that the ranking seemed odd. Degree and certifications so low on the totem pole? Experience far and above the highest ranked job-related category? When looking at just these two stats, I would assume that they’re very similar – the employer was not there to see the applicant do the work, and so the employer has to judge them on the basis of the applicant’s description.

Devin told me that experience wins out every time, because a degree program or a certification often does not inform the employer of their actual skills, whether it be the programming language they’re versed in, the hardware they’ve dealt with, whatever. To me, that seems like a failing of the certification systems in place.

I guess it also depends on the definition of “experience,” but since we’re breaking out degrees/certifications, I’m assuming that experience refers only to jobs held or projects managed. To this end, I feel that it would be more beneficial if 1) degree programs and certifications find a way to provide more consistent results, but that if that’s not going to happen, that 2) IT applicants produce a more skills-based resume during their job search. This way, they could showcase the skill set and the experience gained through their more formal programs, and perhaps give themselves an edge up in a category that otherwise receives less attention.

In the case I described in my post, the organization was a nonprofit with just over 200 employees and a very small (3-4 person) and relatively unsophisticated HR function. The organization was in the process of introducing its first formal compensation and performance structures (very much playing “catch up” in terms of HR), and coming from a place where managers had total discretion for salary increases, with no training, guidance, or other support.

This is obviously a very different situation from that of Avery Dennison, in countless ways, including the existence of the various structures and supports you described and the likelihood that even “managers”, “senior leaders”, and “HR” mean different things in these two contexts.

What I would stress, and perhaps did not emphasize enough in my post, is that compensation decision-making should be positioned at the *appropriate* level, which will vary among organizations and even, for a given organization, at different stages of its existence.

Thanks again for the comment, and for continuing the discussion.

Throughout the year, our HR leaders partner with our managers during the performance planning cycle, calibration at year end and during the merit process. The direct input from the manager regarding pay is not only important to them, but it is those hard (or easy) decisions and conversations which need to come directly from the manager as compensation ties directly to the performance.

Your summary suggests we delink this important step. HR & Compensation will continue to assess decisions, and consult and guide managers, yet shifting the pay decisions to senior leaders would be a step backwards. The role of our senior leaders is to provide strategic overview, direction and parameters. If there are gross outliers or gross inequities on the summary report, certainly these are addressed. The actual decision making needs to stay at the local level working within the parameters of the Pay for Performance program. And yes, they continue to focus on what they do best while being an effective People Leader. Thanks.

Thank you so much for your detailed response. There is a rich body of economic literature on the causal relations between employee satisfaction and organizational practices in traditional for-profit businesses. I suspect some of the results may apply to nonprofits, a much less studied area, which is why I’m very curious to learn about the potential similarities and differences. I will keep looking around and keep you updated if I find anything interesting.

Best,
Pian

There is a significant body of work around employee satisfaction and engagement, but my impression is that while most people working in the field might be willing to suggest correlation between certain practices, satisfaction, and engagement, few would be able to prove causality.

Please let me know if I can provide any more information or assistance. If you’d like, I can look through my bookmarks and provide some links around engagement and satisfaction. In any event, please let me know if you obtain more information and proceed with your analysis.

Thanks again for your comment and for reading. I appreciate it!

Joe

Thanks,
Pian

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To your question, I looked at all types of expenses, but eventually focused on salary because 1) it represents the majority of the school’s expenses, and 2) because of the significant upward trend I observed.

Here are the school’s non-compensation expenses for the three years reviewed, as well as the year-over-year change. As you suspected, they were relatively flat:

2006: $1,549,424
2007: $1,604,603 (+3.6%)
2008: $1,573,651 (-1.9%)

I’m very interested in any further questions, thoughts, or insights you have and in continuing the conversation. Thanks again for your comment!

Wondering how you singled out salary as the critical expense? I suppose both salaries and expenses overall rose each year by roughly 500K. It would be interesting to me to see a graph of non-salary expenses, especially if it stayed relatively flat.

But clearly you did a ton of research to put this together, and it’s very illuminating. Thanks.

The ROI line is definitely an inspiring one, and emblematic of Quixote’s approach. Definitely should be spread!

Thanks again, Ericka. Talk to you soon!

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Thank you very much for your comment and for reaching out to me from Taiwan! I am glad to hear of your interest in the intersection of HR and nonprofit, and am glad to provide any information or help that I can.

When I read your comment, the first topic that came to mind was the question of how government regulation of nonprofit organizations — particularly executive compensation — varies from country to country. I have written a couple of blog posts about practices in the US and in Canada. Just this morning, I came across an article about what is going on in the UK in that regard (I am trying to relocate it again now). It would be very interesting to know how government’s role varies across other countries as well.

Another thought is what the role of HR is in social entrepreneurship and hybrid for-profit/nonprofit organizations. (For example, there is a movement towards “L3C” corporations in the US, which are “low profit” organizations). Related to this might be the question of the role of HR in CSR (corporate sustainability responsibility) — although that moves a little further away from nonprofit.

Those are my first thoughts. Please let me know if you have any questions or if I can be of more help. Thanks again for your comment!

thank you in advance for your advices
Regards,
Andrea

Thanks Joe..another great post!

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The impact in terms of layoffs and reductions in staff pay or hours seem to be somewhat less in Colorado than in New Jersey. I wonder if this speaks to the organizations in Colorado having generally entered the recession in better financial health, or to a stronger ability to do more with less.

You are absolutely right that organizations will need to adapt and innovate in order to continue their impact, and support organizations such as yours play a strong supporting role in that regard.

Thanks again, Sarah. I look forward to continuing the discussion of sustainability and other issues impacting the sector with you.

I thought you might be interested in some comparisons to Colorado. I co-authored two similar reports on Colorado nonprofits and the findings are very similar to what you report above. I actually find this to be VERY surprising because Colorado has been considered one of the states least affected by the economic downturn. Here are a few findings from Weathering the Storm: Challenges and Opportunities for Colorado Nonprofits during Recession (can find full report on homepage of http://www.crcamerica.org):

-Almost 56% of respondents reported that there was a time in the last twelve months when their total expenses exceeded revenues
-65% reported that a major funder reduced or eliminated their support due to the current economy
-16% laid off staff and 21% cut staff pay or hours
-Only 41% of respondents had more than 4 months of cash on hand, down from 45% 9 months earlier.

What we have found in Colorado is that nonprofits are continuing to do more with even less, further exaggerating the nonprofit starvation cycle that many organizations were already in. That certainly is not a good thing for the sustainability of individual organizations and the sector as a whole. The sector has, yet again, proven to be very resilient – at least in Colorado. Although I have not seen his projections of thousands of nonprofits closing to be accurate, David LaPiana’s reminder that this recession will permanently change the landscape of the nonprofit sector is an important one. We cannot expect things to go back to normal, so we all need to adapt and innovate.

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It does sound like there are certain ways in which the transparently which exists currently exceeds that which we have here. In particular, the electronic access to information from the T3010 forms sounds quite progressive. As you suggested, our primary option is to search through individual PDFs of annual tax returns, and to do so primarily using Guidestar, a private organization. (Guidestar has constructed and does provide access to a database reflecting some of the information, but it is limited and access is on a paid basis. The Chronicle of Philanthropy also provides an online database, but it contains a very limited number of prominent organizations and foundations).

The timeliness of the filings in your country is also clearly superior to our practices. In most cases, the most recent information we have available to us now is from FY 2008.

I do understand your argument that other areas of charity operations may merit greater transparency but I view the line you’ve drawn with regard to compensation information — the present use of increments up to %350,000 — as somewhat arbitrary. You imply that reporting individual compensation information would take more time, but it seems to me that the individual employee information is actually the raw data, and that the act of categorizing into increments is actually more work on the part of filing organizations.

I also feel that there can be considerable value in reporting the various elements of compensation separately, rather than lumping them together in a single number. It seems this practice is at the heart of the controversy around the $2.7 million case that you and Claire have both pointed out. As illustrated in my recent posts about the Boys & Girls Clubs of America hubbub here in the states, understanding the makeup of compensation can go a long way towards more reasoned discussions of compensation.

I completely agree with you that compensation should not be used as proxy for the effectiveness and usefulness of a charity. Is it your feeling that greater availability of data would tend to make this happen? Is there any danger that lack of availability creates a sense of secrecy and perhaps suspicion? I am also a strong believer that an organization’s overhead and expenses should not serve as proxy for effectiveness or impact, and that we need far better approaches in this area, but I would not suggest this as a rationale for decreasing existing requirements for the detailed reporting of organization expenses. In short, I don’t see it as an either/or proposition.

I am glad that we are in agreement that disclosure and caps are two completely separate issues. It will be interesting to see if they become more distinct as the bill enters its second hour of debate and any subsequent legislative steps.

I am very interested in your statement regarding the responsibility of boards/governors to ensure that compensation is appropriate. Can you tell me more about this or point me to any resource? Is this spelled out somewhere in existing legislation or regulations?

Thanks again, Mark, for your comment and contribution to my learning. As an inquisitive bystander, I look forward to continuing to learn about and discuss these issues, and to seeing how the debate around Ms. Guarnieri’s bill plays out.

When I said that we have “excellent transparency on the issue of compensation” I am not comparing Canada to the US but to the needs we have here in Canada. For the importance of this issue compared to other issues I think we have more than enough disclosure. From what I have seen so far excessive compensation is not a problem in Canada – abusive Canadian charity tax evasion schemes ($5 billion over 6 years), fraudulent issuing of receipts, poor controls over expenditures both in Canada and abroad etc – those are far greater problems in Canada.

Furthermore 1) Canada requires disclosure of compensation in increments till $350,000 whereas before it was 120,000 which is a very substantial improvement in our context. 2) Compensation according to the bill is not just salary but “compensation” “includes salaries, wages, commissions, bonuses, fees and honoraria, plus the value of taxable and non-taxable benefits;” Hope that answers your question. 3) In Canada I can search in an Access database through all of the T3010 information for free and see which charities are paying what increments – I don’t have to go from one 990 to another as I understand one needs to in the US. I think in fact that Canada is one of the few countries that has made the information electronically accessible as opposed to a PDF on a site which makes it cumbersome to compare thousands of charities at once. 4) I do not think in the big picture compensation should be used as a proxy to determine the effectiveness and usefulness of a charity. There is so much more important information for which there is little transparency required (although some charities voluntarily report on it).

My understanding of the US includes that it takes 3 years of failure to file your 990 to be deregistered as a 501(c)(3) – in Canada if you don’t file your T3010B form within 6-10 months after the deadline a Canadian charity will lose its status. So with a particular charity in the US they may not file for a few years and the information you are receiving can be 3-4 years out of date – even though it is correct to the penny! I am sure that you have seen examples of that.

In terms of salary caps which I agree should not be lumped in with the issue of disclosure and transparency.

Compensation in Canadian charities must be appropriate otherwise it is a breach of the duties of the board/governors and there are significant stakeholders concerns.

In the Canadian context I think it is important to decide what type of transparency would be helpful to various stakeholders of charities, to prioritize that information because charities have to do their mission (obviously they are not there just to fill in forms), and to require that the most useful information is requested from charities on the T3010 and then available to the public. I think that it is important to recognize when certain information on a particular point is enough especially when there are other important areas that are getting little to no attention. There can be different levels of transparency for small versus large charities etc.

Mark Blumberg
http://www.globalphilanthropy.ca

To your question about variable pay, it is hard to give a solid answer. When asked the question, the majority of nonprofits indicate that they use some form of variable pay, both for executives and some or all staff. But when you dig further into the data, you tend to find that in many cases, a) the amounts involved, as a percentage of total compensation, are very small, and/or b) the practices are simply “bonuses”, given in a discretionary manner or on some vague basis of organizational performance. I distinguish “bonuses” from “incentives”, with the latter being compensation that is tied to individual, team, and organizational performance in a planful way.

With regard to variable pay at executive levels, 990 forms do let us know how much compensation is paid as bonuses, etc. But unfortunately, even with the 2008 revisions, we are left without any information as to the basis for the compensation. In my experience working with organizations and boards, bonus payouts to nonprofit presidents/CEOs/EDs tend to be fairly arbitrary, post facto determinations made, again, based on vague notions of the organization’s performance.

Your point about the role of government contracts both within and beyond the nonprofit sectors is a good one. In many cases, the low wages associated with certain types of work are reflective of that work being devalued in our society. I am sure that not everyone would agree, but I do think the government can and should seek to influence and fairly value such work through its contracting, rather than seeking to pay as little as possible and perpetuate that devaluation.

Thanks again, Susan, for your comments and engagement.

First, perhaps you’re right about me being more analytical and less emotionally reactive, but I’m firmly convinced that it takes both types.

I also have to agree with you that it is the funder’s prerogative to request information, whether that funder is public or private, and to vote with their pocketbook. Perhaps in a perfect world, it would also be the organization’s prerogative to provide the information or not, but obviously a good deal of information has to be provided to the federal government through the 990, whether they are a funder or not.

I wish that more of the information being requested — by the government, private funders, the media, and the public at large — had to do with the organizations’ outcomes and effectiveness, rather than less meaningful measures such as compensation and overhead.

I think your analogy about the cool kids and musicians is a good one, but I think your imagery of the message delivered to Johnny is simply brilliant, and probably the strongest argument I’ve heard against external constraints on nonprofit pay at all levels.

Finally, I too am watching the rise of social enterprise with a watchful eye. It will be interesting to see whether it congeals into something that is truly distinct from the nonprofit sector that exists now, rather than just an evolutionary stage. I am also interested in the question of what types of people and management processes will arise to meet these new organizational forms.

Thanks again for your comments, for reading, and for engaging.

Along these lines, I have to take issue with Mark Blumberg’s assertion that Canada has “excellent transparency on the issue of compensation” and that the bill ignores “the extensive transparency requirements that already exist”. I’ve taken a look at the relevant tax form, schedule 3 of T3010B, as well as the accompanying instructions, and note that all forms of compensation are lumped together. I also note the manner in which compensation is reported — by the number of people falling within each dollar range — and have a hard time considering this to be “excellent transparency”.

I’m still not taking sides. Honestly, I don’t care how this turns out. I don’t have a dog in the fight, as the saying goes. But I’m also not understanding Blumberg’s statement that “If providing exact salary information is a poor idea…”. I can’t find, or perhaps I can’t follow, his argument. Why is it a poor idea?

Identifying actual compensation on a per individual basis, with a breakout as to the various types of compensation, would be consistent with the US treatment effective with the 2008 tax year. At least in our circumstances, it seems to represent a reasonable degree of transparency. Certainly, as a consultant to nonprofit organizations in this area, it will allow me to do a better and more informed job.

By the way, I think Blumberg’s point that more transparency about evaluations of the charities’ work is needed is a good one…and one that is applicable to the US nonprofit sector as well.

What I find most striking is that the bill contains two very different provisions: 1) transparency/reporting and 2) capping compensation. I am surprised that these issues are being conflated, and would imagine that different constituencies would have different stands on these two issues (I would).

As I mentioned to you, I received a call from Ms. Guarnieri’s office, filling me on some of the next steps for the bill. I understand that the second hour of debate in the house will happen on 4/19, and if passed, the bill will then go to the Finance Committee. I will be interested in keeping an eye on how it and the accompanying discussion proceed, and look forward to continuing to hear your views on it as well.

Thanks again!

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In terms of executive compensation, here is another issue to add to the mix. Several of my colleagues are Executive Directors for local non-profits, and in their case, are grossly *underpaid* relative to their scope of responsibilities, experience, and performance. So as we look to reform compensation for the third sector, I think this issue deserves as much attention – and perhaps more – as the perceived overpayment of non-profit executives.

Joe, how common is variable pay for non-profit executives? Have some non-profit boards tied bonuses to performance?

While I believe that consumer awareness and tranparency are important, I think government regulation (especially for government contracts) is the most impactful solution for raising wages.

Sadly, the low-wages for many occupations outside of the non-profit sector (e.g., direct care and childcare employees) is actually driven by government contracts. Advocacy efforts have achieved some success in raising wages for these jobs, but the work is ongoing.

My personal political thought is that the gov’t's role is to protect us from fraud and danger. Everything else is left up to us. And as someone aptly said, let donors (individual, foundation or government funders included) vote with their pocket books the way consumers do. And I do agree to some extent that if a funder wants certain information, that is their prerogative. And it is an NPO’s prerogative not to subject themselves to the unduly heavy burdens the funder puts on them by not accepting those monies.

Re: the larger conversation and some of the responses, I am frustrated that the goal seems to be to tear down ALL third sector employees. It is the mentality that the cool kids use to judge successful musicians. If you want to be able to make a living, even an extravagant living by someone’s standards, then you are a sell-out. If you were really an artist you’d be starving in a garret somewhere. And if we REALLY cared about children, the environment, clean water, the homeless, etc., then we’d put up with whatever abusive behavior the 1st and 2nd sectors would like to dish out to us.

Reading all these posts on the Boys and Girls Club, I had a vivid image of going to one of these kids served by a club and saying, “Well Johnny, you can be anything you want to be when you grow up! You can have any kind of lifestyle you want and be successful and go as far as your brains and guts will take you. Unless you want to help make the world a better place… then you can only go as far as other people feel is decent. So good luck with that, kid!” What an awful vision of the American Dream.

As long as different standards are used for different sectors, we in the third sector will be treated as beggars who better know our place and be grateful for the scraps we do get.

However, a boon may come out of this. The new frontier of social enterprise is drawing many talented young people with vision, tenacity and ambition. Perhaps this is the next evolution for our culture.

Another question…when you mention your agreement with Susan that a spotlight should be shone on low wages for frontline staff, do you think this should be in the form of policies and regulations associated with government contracts or funding, or are you referring more to the media/public spotlight?

If someone wants to shine a light on something, I agree with Susan that the incredibly low wages paid to many if not most frontline staff should be in the spotlight.

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There are certainly cases where the treatment of employees by an organization can be seen as inconsistent with the organization’s mission. Unfortunately, while this is sorely felt by those employees, I think the phenomenon usually escapes notice by the public, government, or other funders.

Rather than focus on contract funding of individual positions, I encourage organizations to take a more holistic approach, seeking to provide equitable compensation opportunity at all levels of the organization. In fact, a sound compensation program can even serve to influence higher levels of funding in contracts.

Thanks again for the comment, Susan, and for reading.

Yes, the concern around nonprofit executive compensation is certainly not exclusive to B&GCA, although that is the situation that has flared up most brightly given the Senators’ attention. I think it is important to bring reason and analysis, rather than emotional and scatter-shot reactions, to the topic. I have received a couple of good questions about the B&GCA data, and am preparing a follow-up post to hopefully shed a bit more light on that particular situation. I look forward to continuing to contribute to the conversation around this as well as other nonprofit human resources and nonprofit topics.

Thanks again, and be well!

Again, thanks for being a contributor to informed discourse.

I’m glad that I was able to bring a little more light to this particular case. As I mentioned in my reply to Dan, I’ve received a couple of questions and think I’ll have a few more things to say on the matter soon.

Thanks again, Erica. Talk to you soon! (Monday, right?)

Based on a couple of questions that I’ve received in response to this post, I’m in the midst of a bit more research on this particular case. I’ll let you (and everyone else reading) know when I’ve distilled it. And I’ll certainly be continuing to add my voice to the conversation of compensation (and other people-related matters) in the nonprofit sector, so I’m sure we’ll have the opportunity to interact in the future.

Thanks again and be well!

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As a semi-frequent (?) visitor to Canada, and in the interest of expanding my professional horizons, I’ll definitely be keeping an eye on how the proposed legislation unfolds, and look forward to hearing more of your views. I will also be continuing to write, both here and on the Mission Connected blog, about my views on executive (and non-executive) pay in the nonprofit sector.

Finally, I have to tell you that I love love love your blog (and have added it to my blogroll). If mine grows up to have even a quarter of the personality that yours does, I’ll be a very happy blogger.

Thanks again, Claire. Be well, and stay in touch!

I’m from the great white North so I thought I could help put this bill in context. In my opinion, it didn’t happen in a vacuum.

MP Albina Guarnieri represents Mississauga-East-Cooksville, a Toronto-area riding where many newspapers have made a point of writing critically and specficially about executive compensation & fundraising costs per dollar.

The Toronto Star in particular has been highlighting the charitable sector (beginning with an investigation series in 2002) and has since published many pieces that have generated a lot of commentary from the public.

Here are some of the articles that have inspired debate in the community, and could have contributed to the attitudes shown by those supporting/creating the bill.

Charities admit fundraising mess – July 15, 2007
Columnist discusses commission-based fundraising tactics for major charities:
http://www.thestar.com/news/canada/article/236046

Feds aim to revoke Children’s AIDS – March 16, 2010
Investigation of the costs-per-dollar at a pediatric AIDS foundation:
http://www.healthzone.ca/health/news/investigations/article/780906–feds-aim-to-revoke-children-s-aids-charity-after-audit

Fox’s Celebrity Worries Charity – Sept 24, 2009
Discussion of Michael J. Fox’s American charity vs. an established Canadian charity:
http://www.healthzone.ca/health/newsfeatures/research/article/700200–fox-s-celebrity-worries-charity

Charity boss gets 2.7 million send-off – October 1, 2009
Critical commentary on the published salaries for staff at a hospital foundation:
http://www.healthzone.ca/health/news/gta/article/703659–sick-kids-charity-boss-gets-2-7m-send-off

Shady Kids Charity Has License Yanked – May 12, 2009
Expose on findings of a Canada Revenue Agency audit:
http://www.healthzone.ca/health/news/gta/article/632819–shady-kids-charity-has-licence-yanked

This all comes after a 2006 series of articles run by the paper that calculated only 19 cents of every dollar donated to MADD Canada was spent on programs. This investigative piece and follow-ups created a ripple effect in the community and has stuck in the public perception.

One of the pieces is here:
MADD’s exorbitant costs anger charity’s volunteers:
http://www.thestar.com/news/article/134309

Not every critical article on the charitable sector is written by the Toronto Star, not every article written about charities is critical – I don’t mean to pick on them, but they’re the paper that makes many of their historical articles available on the web and easy to share!

I wanted to highlight some of what’s been written about charities up here because I think it sets the stage for why a bill like this could be tabled and attract public attention.

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