How Charities Evaluate Whether Their Employees’ Salaries Are Equitable

JOB MARKET

By Marilyn Dickey

Lincoln Heights HealthCare Connection was having trouble hiring workers. The charity, which provides

medical services to the underinsured in Hamilton County, Ohio, hired a human-resources consultant, who had a hunch where the problem might lie — with the organization’s pay scale.

Investigating further, the consultant, Patti Dunham, made a discovery: The charity had no formal salary structure.

“Most companies, regardless of their size, have a general idea what they pay for a job — something formalized, something in writing,” says Ms. Dunham. A salary structure that shows pay ranges for each job, she says, helps ensure that workers are given equitable salaries within the organization.

But Ms. Dunham also wanted to see how the group’s pay scale stacked up against that of similar organizations in the area. So, two years ago, she called 10 such charities, gave them copies of the organization’s job descriptions, and asked how much they paid their employees in similar jobs.

The survey showed that many of the salaries at Lincoln Heights were indeed below what others were paying. The compensation for many workers was adjusted upward, and the hiring problem eased.

Nonprofit organizations should take a regular look at their salary structure, say personnel experts like Ms. Dunham, to check that the pay scale is equitable within the organization and make sure that it is keeping up with its competition in the job market. Failure to do so can lead to high staff turnover, difficulty attracting new employees, and pay inequities, such as longtime employees’ salaries that are far out of line with those of new hires.

Making Adjustments

It is best not to wait until salaries are out of line with the market to examine how an organization’s pay stacks up against other groups, says Karen F. Lehr, president of Clear Management, a human-resources consulting firm in Gainesville, Va. Salary structures should be adjusted on a regular basis — every year or two, “just as a part of doing business,” she advises.

Several years ago, when Carole Nemnich joined the board of the Idaho Conservation League, in Boise, she was “shocked and appalled” at how low the salaries were, especially for support-staff members and workers who had been on the job for many years.

The personnel committee, which she led, “did a salary survey based on any information we could find — and back then it was harder than it is now,” she says. “We made major adjustments, especially for those who had been there for over 15 years.”

In addition, she says, the organization added cafeteria-style benefits, so workers could choose to take more vacation time, add more to their retirement accounts, or bolster their health insurance. And those workers who had been with the charity for more than seven years could take a three-month paid sabbatical, “a way to entice them to stay,” she says.

Now, under Ms. Nemnich’s watch as its board chair, the organization recently conducted another salary survey to gauge its progress. “We compared quite favorably to national and regional benchmarks,” she says.

In fact, she says, the organization is now held up as a model in the area for attracting and keeping employees, and the stability of the staff — which improved when the salaries went up and benefits were added — has even helped fund raising. The group’s grant makers, Ms. Nemnich says, like dealing with workers who have institutional memory, and senior staff members like the fact that they spend more time on the mission and less on hiring and training.

High Salaries

Salaries that are too high can be just as problematic as those that haven’t kept up, says Ms. Dunham. After the new salary structure was put in place at Lincoln Heights, two workers’ salaries were found to be higher than their pay range.

“They’ve been with the organization so long and are doing the same job for so long,” she says. “If you have staff who have been there a long time, if you don’t have a salary structure in place, and they get 4- or 5-percent raises each year, going above a cost-of-living raise, at some point they are going to be very highly compensated, much more so than others.”

Instead of cutting back the highly paid workers’ salaries, says Ms. Dunham, the organization decided to freeze their pay until they are within the range for their positions. To show the organization’s appreciation of their work, however, they each are getting an additional lump-sum payment every year their salaries are frozen.

“The goal is that eventually they’ll get back into their job range, because the job ranges increase every year, with inflation,” she says.

One of the two workers fell within the range this year, Ms. Dunham says, but the other is still high above the target range. Because it could be several years before the range catches up with her salary, says the consultant, “we are looking toward increasing some of her responsibilities to bring her job more in line with her pay.”

Conducting a Survey

When the Institute for the International Education of Students first organized a formal salary structure five years ago, its president, Mary Dwyer, turned to Towers Perrin, a human-resources consulting company with headquarters in Stamford, Conn. The institute provides study-abroad programs for colleges and universities and has 75 employees at its Chicago headquarters, plus 400 employees around the world. She chose an outside firm to do the survey work in part because, with employees scattered all over the globe, the job of assessing compatible pay proved complex.

Some people underestimate how demanding a salary survey can be for charity leaders, even when they hire a consultant to do the work, says Ms. Dwyer. “It took a significant amount of my time,” she says. “Study abroad is a very peculiar industry. It took a lot of time to define terms.”

Overall, though, the survey was well worth the $30,000 price tag, says Ms. Dwyer. Some salaries had been way out of line, she says. “It’s had a huge benefit on the organization,” she says. “It reinforced people’s commitment and positively affected morale.” And it reduced turnover, she adds — it dropped from 20 percent per year before the survey was completed to under 2 percent annually afterward.

The institute has a budget of $60-million, derived mostly from student tuition. But organizations with smaller budgets can find ways to get information at a lower cost than the institute paid.

Some groups use existing salary surveys. That approach can involve spending some money, however. For example, one large human-resources company, Watson Wyatt, conducts a survey that separates out data for for-profit and nonprofit employers, which costs between $1,000 and $1,500, depending on the format. (For more on finding existing salary-survey data, see the sidebar, “Sources of Salary Data.”)

For groups that have no money to spend, ample information is available free. Three years ago, when Thyonne Gordon became executive director of A Place Called Home, in Los Angeles, she discovered that determining salaries at the organization had been mostly guesswork. The charity, which provides shelter for inner-city youths, was operating on a tight budget, but Ms. Gordon found all the data she needed by consulting the free information on The Wall Street Journal’s Web site and on Salary.com.

“Some administrative salaries were very high and program salaries very low,” she says. “I went through and tried to bring them into alignment.”

Doing a salary comparison doesn’t necessarily mean looking only at similar organizations, says Jan Masaoka, executive director of CompassPoint Nonprofit Services, a consulting group in San Francisco. When she conducts surveys for her own nonprofit organization, she looks at salaries paid by employers that compete for the same kinds of workers — and that may include for-profit organizations and government.

“For example,” she says, “administrative assistants are most likely to go to jobs at other nonprofit organizations or to move up to, say, a program-assistant level at other nonprofits. But our consulting staff are most likely to leave for sole practice. When we did this study, we called both nonprofit and for-profit consulting firms. Most were for-profits, because not that many other nonprofits have consultants.”

Although many people assume that for-profit organizations have better pay and benefits, it isn’t necessarily true, she says: “I think it depends on scale. We’re not IBM. We have 32 people who work here. If we compare ourselves with a 32-person for-profit firm, we’re pretty high.”

Approaching Employees

For charities that conduct wage and benefit surveys on their own, such as CompassPoint, getting other employers to disclose their salary information is easier if they have assurances that it will be kept confidential — and if they will see the aggregated information once the survey is done, says Ms. Masaoka.

Ms. Dunham adds that it is important to mention not just job titles but also job descriptions when asking about salaries at other organizations.

Peter Manzo, executive director of the Center for Nonprofit Management, in Los Angeles, which provides consulting services to charities, cautions against being limited by a salary survey’s findings. If an employee’s work is outstanding, he says, the question becomes whether that person’s salary should be held back because he or she is reaching the top of the scale. “I would argue no,” he says. “You’ve done all this hard work of getting all these really good people, and if you’re going to keep good people who are much better than their peers in many regards, we shouldn’t feel bad about that.”

Changes in salary structure can touch a nerve, even when the news is that most workers will be getting raises, says Bill Coy, human-resources consultant for La Piana Associates, in Oakland, Calif. “Don’t expect to be greeted as a conquering hero when you decide to do that,” he says. Some employees’ salaries may be at or above the target range. Others may think they should be getting more.

But employees often underestimate their total compensation, focusing on their base salary without considering bonuses and benefits, notes Mr. Manzo. A benefits statement can show employees how much they make altogether.

When making adjustments to the salary structure, an honest, straightforward approach is best, advises Ms. Lehr. “If people don’t know what’s happening, then it raises doubts and they tend not to trust the system,” she adds. “You get more dissatisfaction and people grumbling about pay.

“Employees want to know salary structures are done in an orderly way, that we conduct market research and move our salary ranges to stay abreast of the market,” she says. “The better they understand how compensation works, they more satisfied they are with it.”