As you accept a nonprofit board position, you may already know that executive compensation is one of the board’s most important duties. Creating attractive and reasonable compensation packages, practicing transparency, and opening opportunities for diversity are just some of the challenges when establishing an executive compensation policy.
Across the board, diversity tends to be lacking in the nonprofit realm even though diverse boards make the best decisions.
We’ll review the challenges with pay equity and offer ways your board can improve it. We’ll wrap things up with resources for finding a nonprofit compensation template.
Racial Equity in Nonprofit Compensation
Racial equity has been an issue in business, society, and nonprofits. White men and women tend to have more opportunities for education and better prospects for leadership positions than Black men and women.
The 2019 Race to Lead Survey (a poll of 4,385 nonprofit employees) shows 26% of white people hold CEO or executive director positions. By contrast, people of color only hold 17% of CEO or executive director positions. The survey also indicated that Black women generally feel that their race is a negative factor in pursuing career advancement.
Black women noted they get lower pay than white people, and they lack the help of mentors. They’re often overlooked for jobs and promotions because leaders assume they’re underqualified. The survey also noted that while white women were accepted for expressing a standard range of emotions, Black women were apt to be disciplined for emotional displays in the workplace.
Assumptions and stereotypes play a role in how leaders view women in nonprofits. According to the Washington Post, most nonprofit leaders are overwhelmingly white and are generous. Black women are viewed as “angry Black women” when they stand up to disparities and discrimination.
As for pay equity, a Pew Research Center study showed that white women earned 82% of the median pay per hour of white men, while Black women only earned 65%.
Ultimately to achieve pay equity, nonprofits must also achieve racial equity. Nonprofits will need an ongoing goal to achieve racial equity and pay equity. To do so requires moving from policy to action and doing whatever it takes in recruitment, hiring, and retention to get there.
Salary Increases in Nonprofits
The board is ultimately responsible for approving raises for executive staff, deciding what raises are based on, and how often executives should qualify for them. In the spirit of pay equity, salary increases can’t be arbitrary or inconsistent.
Consistency requires putting an executive compensation policy in writing to use as a basis for establishing equitable executive compensation practices. It’s best to begin your policy wording with a general statement on how your pay rates relate to similar types of nonprofits. For example, “The NAMI Tennessee executive director will receive pay that is comparable on average with other NAMI state affiliates.”
Your board may decide to give pay increases based on merit or by automatic progression. Some nonprofits opt to use a grading system where each position is assigned a grade from 1—10, each with a designated pay range. The first step in establishing pay equity is to write job descriptions for executive positions. Having written descriptions will allow the board or compensation committee to tie goals into their job description.
Your executive compensation policy should incorporate regular times for performance reviews. It’s essential to do consistent and regular performance reviews.
Nonprofit Salary Transparency
There are two sides of the coin on the issue of nonprofit transparency.
On one front, a new campaign with the slogan “#ShowTheSalary” seeks to promote pay equity by encouraging employers to list salaries along with job listings. The idea is that without knowing the salary upfront, it puts job candidates at a severe disadvantage. The group claims women and people of color get less pay than men because of bias during pay negotiations.
On another front, Vincent Robinson, the founder and managing partner of an executive search group that recruits leaders at foundations and nonprofits, disagrees with the #ShowTheSalary campaign’s principles. He notes that 90% of the executives his firm places are people of color, women, people with disabilities, and people from the LBGTQ community. Based on Robinson’s work experience, he believes salary disclosures on job descriptions deter job candidates from going after executive positions.
The actual test could come soon as Colorado passed a new law in January 2021 that mandates employers to include salaries in job postings. A study in 2020 related to United States public universities showed that the salary difference between men and women decreased from 9% to 3% for higher education institutions that practiced transparency of salaries.
Nonprofit employers need to do more than display salaries to enact real change. Some believe true pay equity requires nonprofits to campaign for better compensation, close the gap in pay scales, and remove education requirements.
Experts offer nonprofit boards the following three strategies for achieving pay equity:
- Expand the amount of time searching for candidates to open up a larger, more diverse pool of talent.
- Create a diverse search committee.
- Use salary disclosure as just one important step in attracting diverse candidates.
Key Elements in Nonprofit Compensation Policies and Where to Find Samples
As your board commits to pay equity, it’s wise to consider adding some key elements into your compensation policy. First, list the benefits that accompany specific positions. Beyond that, to ensure fairness, link compensation to the employee’s experience, education, and performance and consider related industries they’ve worked for in the past—set performance goals based on their accomplishments.
Determine how you will determine pay increases (cost of living, bonus, merit) and communicate adjustments to the employee. Above all, avoid off-agreement benefits at all costs.
While the board makes the ultimate decision about compensation, they may delegate tasks to a committee or independent consultant.
Your board should also review the IRS Intermediate Sanctions safe harbor requirements as noted in IRS Code section 4958 as a resource regarding excess benefit transactions. Also, bear in mind that nonprofit executive compensation is public information. Suppose the executive’s compensation is over $50,000 per year. In that case, your nonprofit must disclose it on Form 990 and comply with all the IRS requirements.
Volunteer Iowa offers a few executive compensation policy samples to help you get started on the path to pay equity.
Without a doubt, pay equity is a hot topic that will likely continue to be one in the near future. Your board stands to benefit from establishing fair pay to all qualified candidates. A board management solution such as BoardEffect will support your every step.