Author: Shari Dunn
As we move toward next year, it's crucial for nonprofit organizations to plan to develop new and improved strategies to ensure competitive, equitable, cost-effective, compliant and transparent pay for their employees. In this article, we explore the guiding principles behind pay decisions, the importance of budgeting for salary adjustments, the need to value jobs correctly and effective communication strategies to tell the story of pay decisions.
Guiding principles for pay decisions
When making pay decisions, organizations should adhere to several guiding principles, which are really the goals they have for their employees' salaries. These guiding principles include competitiveness, pay equity, motivation, cost-effectiveness, legal compliance, transparency, and engagement. By following these principles, organizations can ensure that their pay decisions align with their overall goals and values, which is especially true for mission-based nonprofits.
One way to establish guiding principles is to develop a written pay philosophy that specifies the employer's compensation goals and how they're achieved.
Pay competitiveness and equity
To achieve pay competitiveness, organizations should try to offer an attractive value proposition. This value proposition includes ensuring that wages, salaries and other rewards are at least as beneficial as those offered by other employers for the same jobs. Paying competitively also supports high levels of employee engagement, so the organization should assess the engagement value of other, sometimes costly, total rewards elements.
Similarly, pay equity involves determining actual cash compensation that's based on:
- Objectively established, competitive and internally aligned job values
- Additional measurable criteria such as goal achievement scores, level of competency development, and/or years of service.
It's essential to revisit the pay philosophy and determine the level of pay relative to the market that's affordable for the organization.
Budgeting for salary adjustments
Speaking of affordability, setting the organization's annual salary adjustment budget requires organizations to re-assess their financial ability to achieve their competitiveness goals. The budget should be sufficient to ensure that employees are paid as competitively as possible, as well as equitably.
One key to budgeting salary adjustments is to focus on the actual salaries, not on the individual percentage increases. Paying the same percentage increases to all employees will simply perpetuate any existing pay inequities. Of course, the overall budget is likely to be a percentage of salaries overall, but how that pool is allocated should be with the objective of correcting any inequities to the extent possible. One consideration may be to identify employees who are overpaid and withhold any further pay adjustments so that underpaid employees' salaries can be appropriately adjusted. Also, organizations should closely manage new hire salaries in a way that avoids salary compression.
Valuing jobs correctly
Valuing jobs correctly is essential for determining the relative worth of each position within the organization. This valuation involves clarifying reporting relationships, documenting job responsibilities and qualifications, defining internal job relativity and conducting robust job-by-job labor market pricing. By establishing a base pay framework and job values based on internal relativity and market indicators, organizations can ensure that their jobs are valued correctly.
The framework within which jobs are valued is typically a salary structure consisting of a series of grades with associated job values. A job value is analogous to a midpoint of a pay range and represents what the employer should pay a fully qualified and performing employee in that job to be competitive at the middle of the market. Ranges are built around the job value to accommodate the pay levels at which employees at differing levels of competency and/or performance should actually be paid. It's important to be very specific about these levels, consistent with the organization's pay philosophy and guiding principles.
Effective communication strategies
Transparency and communication are key when it comes to making and supporting pay decisions, both when planning for salary adjustment and when hiring new employees. Transparency involves disclosing pay ranges, while communication focuses on ensuring that employees understand the conceptual basis on which pay decisions are made.
By cultivating employees' understanding about pay practices, nonprofit organizations can improve salary management practices, achieve actual pay equity, enhance employee trust and engagement, and ensure that people managers are well informed.
Some states' pay transparency laws require publicly disclosing salary ranges when posting job openings and also upon request by employees. Disclosing the actual salaries of employees is generally not done out of consideration for employees' desire for privacy, but it's possible that future legislation may require a greater level of disclosure. Therefore, it's in employers' best interest to structure their salary management practices in a way that's objective and justifiable.
Conclusion
As nonprofit organizations plan for 2025 salary adjustments, it's crucial to consider the guiding principles behind pay decisions, budget effectively, value jobs correctly, and communicate effectively about pay. By implementing these strategies, nonprofit employers can achieve competitive, equitable, cost-effective and transparent pay levels that will lead to improved employee satisfaction, engagement and overall organizational success.
Gallagher's Nonprofit practice serves more than 30,000 charities around the world through its many services in the financial and human resource realms.Learn about our Nonprofit consulting services or email our nonprofit team for more information.
