Let's Talk About Compensation

Tuesday January 12, 2021 comments Tags: nonprofit, accounting, mission, vision, tools, financial reports, compensation, hiring, university o

Any accounting, business or tax advice in this here podcast is not intended as a thorough in depth analysis of your specific issues. It's not a substitute for a formal opinion. It is not good enough to avoid tax related penalties. Got to tell you this because I don't want y'all coming for me.

Join me on Tuesday, January 26th, 2021 for Ready, Set Process. It is a one hour jam packed session for us to plan out the next 12 months of your organization. This is my favorite workshop. I know I love the budget one, but this is my favorite one because the planner in me wants you to think about what’s ahead and how to get a handle on it. This workshop is for you and your if you are looking to do some more delegation and you are not sure where to start, it’s also for you if you are needing some tips on improving your financial reporting, and finally this might be the place for you if  you are ready to get a timeline on the grants and look at your calendar and look at where you need support, rather than all the deadlines hitting you all at once.

Welcome to season five of the Nonprofit Nuggets Podcast. This season, what I wanted to focus on was news. So oftentimes I hear nonprofits say that they don't want to end up in the news. And so I am going to go through some articles, pull out what happened, and also give you some tips on preventing this being your organization. To lay the groundwork for this, I'm actually going to talk about an article that doesn't talk about any specific organization. But it does talk about compensation. And since we're at the beginning of the year, and compensation as you move forward is going to be a hot topic, I wanted to dig into this. 

So this was an article by the University of Texas. They title of it is “Manager Pay Level Drives Misreporting of Nonprofit Financial Performance.” And this is based off of a study by Eric Chen, who's an assistant professor of accounting over at the McCombs School of Business at University of Texas in Austin, and Shinjuku, Jang of Cornell University. Sorry, if I mispronounce any names. I know I hate when people do it to me. But what caught my eye about this article is because their study was trying to say, hey, if people are coming into this role, because they're connected to the mission and not to the pay, what effect does that have? And what they found is when people said, Oh, I'm super committed to the mission, the pay doesn't matter. They were more likely to misreport how much was going to program expenses, versus total expenses, when compared to someone who picked a job, because the pay was better than if they went with a for profit organization? This is not surprising to me. So how do you prevent this? How do you stop people from saying like, Oh, I want to be in this organization? And I'm okay with, you know, massaging the numbers, perhaps, because I know that if I massage the numbers will look good to funders, and they'll continue to give us money. How do you stop that? You think about your compensation and think of could someone with the same experience that we're asking for, get paid in a different sector? A comparable amount? If you see that you are underpaying? You will find that you're going to get a lot more of these mission driven people? No, there's nothing wrong with being mission driven. You definitely want the people who work for you to be connected to the mission, but if they're more tied to the mission. They're more tied to you getting your donor funding, they are going to be more likely to do things that are in your favor, that could perhaps make these procedures unethical in order to do that.

So as you review your pay, consider what are comparable organizations paying? What could put us at risk? Have we adequately thought about this? Is this a question that maybe you want to ask, in the interview process about? What drives this person to come into this work? Because yes, again, you want them to be committed to the mission. But you also want to be realistic and see like, are they feeling other offers? Is there something that you could do that would make it more equitable as compared to other places? And consider, always consider this? Who are you perpetuating into the spaces, I always, I always think of like, when you pay very little, there's only a certain type of people who can afford to work for the organization. So if you, if that's the other side, if you're like, we're not so worried about people massaging the numbers, but we want to make sure we have a diverse candidate pool, make sure that you're paying people enough so that they can say no to another job that will cover health care and benefits and a living wage to work at your organization. All right, that's it for this week. Let me know what you think. Do you agree with the study after you read it? And let me know if your organization has taken a look at the compensation to see how you stack up with other organizations, other industries, to make sure that you are attracting the best candidates who will be holding things up to an ethical standard and not massaging because they're worried about losing funding.

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Link to Article: Manager Pay Level Drives Misreporting of Nonprofit Financial Performance