Nonprofit Compensation Systems Part 1: An Ethical Roadmap to Success

by | May 4, 2022

Creating a nonprofit compensation system is not as daunting as it may seem. Implementing an ethical program is simplified with the right strategies, structures, communication, and management. But to be successful, it’s best to develop a plan — essentially a roadmap, which helps navigate each requirement along the way. In this two-part article, we’ll first outline the foundational aspects of building an ethical nonprofit compensation system as well as several best practices for sharing, communicating, and managing that plan with your team. Then, stay tuned for part two, which includes a deeper dive into the (often complicated) subject of nonprofit executive compensation — especially when it comes to credit card rewards and management.  


To start, here are some basic foundational pieces to keep in mind when building a nonprofit compensation program. They include:

  • Ensuring compensation alignment with your organization’s values
  • Establishing formal systems for managing human resources (HR)
  • Implementing an effective, transparent communication plan 

Align compensation and values

As a nonprofit, your mission is a primary initiative, but you must prioritize your employees too. These dedicated people help make your organization a success. What’s more, good staff results in good programs. And to have good staff, you must pay what they’re worth. So here’s how to get started with a compensation system that’s fair, ethical, and transparent:

Research and rationalize salary ranges

To provide a fair wage, determine the average salary for each employee’s job. Consider years of experience in your research. And if you’re paying a higher-than-average rate of pay, make sure that it’s justified. Look at IRS filings from similar-sized organizations to find appropriate salary ranges. Other valid resources include: GuideStar, the National Center for Charitable Statistics (NCCS), and the Urban Institute. Also, reference salary surveys done by nonprofit state associations. 

Offer alternative benefits

Sometimes you need to be creative if there aren’t enough funds to pay a fair wage. Options include changing a position from full-time to part-time. In addition, you could increase vacation time, offer low-deductible health insurance, special bonus programs, commuting allowances, opportunities for professional development, and paid leave for maternity, just to name a few. Be inventive but ethical too.

Establish systems for managing HR

Once you’ve determined salary ranges and benefits for your employees, the next step is to make sure they understand their rights and responsibilities and the requirements for obtaining a raise. Here’s how to establish a system for managing the HR element:

Create and maintain an HR manual

Your manual should include the basics of your organization, like its history, mission, vision, and structure. It should also include your policies, procedures, compensation, and benefit plans. Review your HR manual regularly and update it anytime laws change or rules are revised.

Maintain consistency

Be sure to apply policies and procedures equally and consistently with all team members. It’s highly ethical, and it sets a precedent that helps staff better understand expected behaviors.

Include a professional development plan with annual reviews

Establish measurable goals not only in performance but also in professional development. Have annual reviews to mark progress and share any areas that need improvement. Be open, truthful, and offer support whenever needed. 

Update job descriptions regularly

An employee’s work may change over time, necessitating reclassification, salary adjustments, or a new job title. Therefore, review regularly and make updates as needed.

Provide salary benchmarks 

When determining the salary ranges for your employees, break those down into high, medium, and low categories. Then, apply a definition and rationale for each. Finally, share that information with the employee to set proper expectations. 

Implement a communication plan

We’ve already touched on the importance of communication a few times, but it’s worth repeating. A practical, transparent, values-driven communication plan is imperative for a successful nonprofit compensation system. It helps employees understand their job requirements, pay, the standards for obtaining a raise, and how any changes may affect their employment. Here’s how to implement an effective communication strategy:

Communicate changes quickly, clearly, and consistently

Clearly and consistently describe the compensation program to your employees. Whenever a situation affects an employee’s job, promptly communicate to all stakeholders. If changes occur in health plans, vacation policies, work-from-home programs, bonuses, etc., share those changes immediately via meetings, memos, or email.

Schedule sessions for communication

Conduct supervisory sessions at regular intervals throughout the year to remind employees how their benefits work. Ensure they understand their compensation program and share how they’re progressing on their performance objectives. These meetings are above and beyond the annual review but are helpful when that yearly one-on-one does occur.

With all of these essential foundational pieces in place, you’ll be well on your way to creating a meaningful compensation system for your nonprofit. But to make it even better, there’s one more critical piece to consider — executive compensation. It’s a tricky subject, especially when it comes to credit card usage. For helpful advice on that stay tuned to our Qbix Blog for the next article in this series, “Nonprofit Compensation Systems: Executive Pay and Credit Card Use.”

In the meantime, if you have any questions or need advice about nonprofit compensation, accounting, or other financial issues, our expert team is happy to help. Set up a free consultation call today


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