A number of clients have asked me recently what to expect for nonprofit salary increases in the coming year.
The short answer is that while no one knows for sure, there is clearly pressure to reduce salary budgets for FY 2010, with a number of organizations freezing compensation. At this point, my guess is that average salary increases for nonprofit employees will be between 2.0% and 2.5% in 2010, down from the typical 4.0% to 4.5% over the past ten or fifteen years. And nonprofit executives may get even less.
A quick survey of my clients shows that first and foremost, what organizations are doing with compensation depends very much on how the recession is specifically affecting them. In organizations that are cutting back on programs or staffing in material ways, none of the top executives are taking salary increases this year, and others are cutting their pay -- a few by as much as 10 or even 20%.
In most of these cases, the decision not to take a salary increase (or to reduce pay) is being made by the Executive Director, who then informs the Board that this is what he or she would like to do. This is partially because these individuals believe this is the right thing, and partially because it is a stronger message optically to announce that the ED requested a pay freeze (or cut) than to announce that the Board decided independently to take this action.
That said, not all organizations are reducing or freezing pay. Some are in a growth mode and are going ahead with modest increases. Some are giving lower increases than they originally planned. In all of these cases, the organization's funding has not been seriously threatened; there have been no layoffs (except perhaps some pruning of weak performers); revenues are continuing to grow.
The situation with incentives is a bit more complex. One of my clients has suspended bonuses this year -- none will be paid -- and isn't certain whether there will be any payments next year. But bonuses in this organization are typically 5% of pay or less -- maybe 10% for the ED -- so while they are not unimportant, they are not a highly significant part of total compensation. The President of another client voluntarily took a substantial cut in a bonus targeted at about 30% of base pay -- even though the Board had evaluated her performance as exceptional. And a third client, whose financial situation remains relatively strong, is letting its bonus payouts operate normally, with no reduction.
The bottom line here is that compensation decisions should be in line with both financial results and the messages you are sending to your employees and the community. It's important that employees be treated fairly and that their compensation is sufficiently competitive in your labor markets to reward and retain them. At the same time, it is vital that the nonprofit community not waste its challenged resources, and that pay decisions are reasonable in light of economic circumstances.
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