Nonprofit Organizations, and Human Resources Management

COMPENSATING THE ORGANIZATION'S EMPLOYEES AND VOLUNTEERS

Tangible Benefits

As Ted Nicholas noted in The Complete Guide to Nonprofit Corporations, nonprofit corporations may establish fringe benefits programs for their employees. People that can be covered under these programs include not only staff personnel, but also directors and officers. "The benefits," wrote Nicholas, "can be as attractive as those provided by for-profit business corporations. In addition, the benefits can be far more economical for the corporation and beneficial to the employees than any program that could be offered by unincorporated organizations. The nonprofit corporation can establish an employee pension and retirement income plan. It can provide for sick pay and vacation pay. It may arrange for group life, accident and health insurance coverage for its officers and employees. It can elect to cover its employees' personal medical expenses that are not covered by the group insurance plans, provided that the corporation can pay all or part of the cost of the various employee benefits it sets up. It can require some contribution from the employees covered by the fringes."

Bruce Hopkins observed in his Legal Guide to Starting and Managing a Nonprofit Organization that "there is a tendency in our society to expect employees of nonprofit organizations to work for levels and types of compensation that are less than those paid to employees of for-profit organizations. Somehow, the nonprofit characteristics of the organization become transferred to the 'nonprofit' employee." Hopkins goes on to note that while this perception may indeed be a reality because of the budgetary constraints under which many nonprofit organizations operate, in other instances employees do not feel entitled to compensation levels that are offered to employees of for-profit businesses. In fact, some nonprofit groups feel no obligation whatsoever to provide comparable levels of compensation in terms of salary, benefits, etc., relying instead on the altruistic leanings of those who become involved. Organizations that operate under these assumptions are short sighted and run the risk of losing out on many talented people. Indeed, Hopkins pointed out that "many nonprofit organizations, particularly the larger ones (universities, hospitals, major charities, and trade associations), require sophisticated and talented employees. Because these individuals are not likely to want to be 'nonprofit' employees, nonprofit and for-profit organizations compete for the same pool of talented persons. This competition extends not only to salaries but also to benefits and retirement programs."

Experts indicate that although the compensation packages that are offered by nonprofit organizations are constrained by the so-called private inurement doctrine, which holds that the profits realized by a nonprofit organization can not be passed along to private individuals (as dividends are passed along to shareholders in a for-profit enterprise), they can still offer attractive compensation packages to employees provided that they are judged to be "reasonable." When weighing whether it considers compensation to be reasonable, the Internal Revenue Service studies whether compensation arrangements exceed a certain percentage of the organization's gross revenues. Excessive compensation can be penalized by imposition of additional taxes and fines, but the most damage to organizations who do this can often be found in the realm of reputation; few allegations are more damaging to a nonprofit organization's community standing than the charge that it is bestowing excessive compensation (in the form of salary, country club memberships, etc.) to top executives or others.

Intangible Benefits

Successful managers of nonprofit organizations recognize that the people who compose their organizations' work force—volunteers, employees, officers, and directors alike—are often participating in the group at least in part for altruistic reasons. Indeed, Drucker noted that "although successful business executives have learned that workers are not entirely motivated by paychecks or promotions—they need more—the need is even greater in non-profit institutions. Even paid staff in these organizations need achievement, the satisfaction of service, or they become alienated and even hostile. After all, what's the point of working in a non-profit institution if one doesn't make a clear contribution?"

Leaders of nonprofit organizations, then, need to always be on the look out for ways in which they can show their paid staff, their volunteers, and their leadership how their involvement in the organization is making a difference, whether the group is involved with ministering to the economically disadvantaged or devoted to protecting a beloved natural resource. As Father Leo Bartel, Vicar for Social Ministry of the Catholic Diocese of Rockford, Illinois, told Drucker, "We give [volunteers] opportunities to deepen in themselves and in each other the sense of how important the things are that they are doing."

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