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Read Part One HERE.
It’s no secret that many individuals work in the nonprofit sector because they believe in the mission and work. While this adage remains true, employees of nonprofit organizations still deserve to be compensated competitively and equitably for their labor. Fair, equitable compensation is key to recruiting and retaining top talent at organizations.
To achieve pay equity, nonprofit organizations must have a clear, equitable compensation strategy in place. The strategy should reflect organizational values, goals, structure, and culture. It should also be responsive to the organizational budget, include policies around transparency, and support both internal and external equity. Before diving into compensation equity, it’s important to note that compensation includes more than just salary—it represents the combination of salary and benefits.
There are two key parts to compensation equity: external compensation equity and internal compensation equity. External compensation equity considers how individuals at an organization are compensated compared to individuals either doing similar work or with a similar level of responsibility at a different, comparable organization. This consideration is achieved through compensation benchmarking. Internal compensation equity refers to how individuals at an organization are compensated compared to their colleagues doing similar work or with a similar level of responsibility.
For external compensation equity, it is recommended that organizations conduct a full external equity analysis every 2-3 years, in addition to maintaining pay equity when hiring. Conducting an external equity analysis consists of benchmarking positions to the market (in this case, the nonprofit market), and it’s best to have this done by a third party, since salaries and demographic information are usually confidential. With the expansion of remote work, organizations should also consider how COLA and geographic location factor into salaries. When conducting an external equity analysis, organizations should use multiple sources to develop an average range of salaries. Organizations should also consider where they would like to position their salaries relative to the nonprofit market: some organizations position themselves at the 50th percentile, while others may opt to position themselves at the 75th percentile. Organizations who target the lower end of a salary range may do so because it’s all they can offer, but they might offer a great range of benefits to compensate. In addition to salary benchmarking, organizations should also conduct a benefits benchmarking analysis to understand and communicate their total compensation and benefits offering relative to the market. When conducting compensation benchmarking, it’s crucial that the organization compares their compensation to organizations of a similar size (budget and/or employee size) and in the same geographic location. The organization can also look at the national market to contrast their findings, but the analysis might yield less useful results for organizations located in a specific region.
To determine internal compensation equity, organizations must analyze individual compensation as it relates to factors such as job level, tenure, age, race, gender, years of experience, and (for some positions) academic credentials. Most organizations may feel inclined to compare the salaries of various demographic groups to each other, but it’s important to go beyond this step to determine if there are inequities. For example, organizations may compare the average salaries of cis females, cis males, and nonbinary individuals and find that cis males earn more than cis females and nonbinary individuals. At first glance, this could be seen as a glaring inequity. While this might be true, organizations should go further and ask themselves why this might be true. Are 90% of employees cis men and only 10% women and nonbinary individuals, with cis women and nonbinary individuals employed primarily at entry levels? If so, this will impact the overall average. On the other hand, if there is an even split between genders with all genders represented at all levels of the organization and cis men are still earning $15,000 more than cis women or nonbinary individuals on average, organizations should ask themselves why. Are we (consciously or subconsciously) discriminating against cis women and nonbinary individuals? At this point, it’s important to look at the breakdown of these statistics—consider individuals’ tenure, job level, and other employment factors. An internal equity analysis requires analyzing compensation in a variety of ways to determine whether patterns of inequity exist—and if so, to identify where they are and how the organization could address them.
Determining a compensation strategy and conducting a compensation analysis are crucial parts of maintaining the equity and integrity of an organization. First, organizations must establish their compensation strategy and philosophy. Once these are established, organizations must next conduct full internal and external compensation equity analyses. This requires access to benchmarking data sources, staff salaries, and staff demographic information. Some organizations may worry that they are too small or have too many unique positions to conduct external benchmarking, but it is possible and encouraged for smaller organizations to also conduct external benchmarking.
DRG Talent’s expertise includes a complete compensation strategy and analysis. Our experts will work with organization leadership and staff to review salaries and conduct a thorough analysis. For more information on this service, please contact one of our experts, Akshita Sankepally (asankepally@drgtalent.com).
Akshita Sankepally, Talent Consultant
