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Compensation Perspectives

Published November 2007

“Bridging” the Salary Gap Between For-Profits and Nonprofits

Brian Summerfield

Many executives have made the transition from the for-profit sector to nonprofit organizations, but very few of them probably took that leap for money. Obviously, not-for-profits rarely ever have a great deal of cash to throw around on compensation, or at least not enough to compete with profit-seeking companies. Additionally, they can seldom boast the great benefits packages one might find at a public-sector organization.

So why do these so-called "bridgers" move to nonprofits? Quite simply, because the motivation for working with these organizations is intrinsic rather than extrinsic.

"The nonprofit organizations offer an executive the opportunity to work for a mission," said Karen DeMay, regional director of talent and recruiting for Bridgestar, a firm that helps connect qualified leaders to nonprofit organizations. "That's very attractive for a subset of the population. For people who have a great deal of skill and want to give back, (not-for-profits) offer them an opportunity to do work that they're passionate about and has meaning for them. The work of the organization is the attraction. They're all focused on one mission, so that's a very attractive work environment for a lot of people."

This is something any executive coming into a not-for-profit must understand up front — that every other consideration is secondary to the mission.

"The primary motivator is to help the nonprofit achieve its mission," DeMay said. "That's a different perspective. There's less of an emphasis on rewarding people for what they bring to the organization or what they do for the organization through compensation. It's all about perception and mentality — being able to understand that people in nonprofit organizations are especially committed to the mission, especially at the senior level.

"The big challenge is to help the executives decouple their compensation with their worth. There are a lot of executives who are accustomed to getting bonuses and merit increases. They have to adjust their thinking."

Pay for leaders at not-for-profits will vary according to the size and scale of the organization, geography and the "line of business," but there are four primary obstacles to executive compensation that cut across the entire nonprofit sector:

1. Lower salaries (but not dramatically lower).
2. Rare to nonexistent bonuses.
3. Annual compensation increases at or below cost of living.
4. No equity.

Still, this doesn't mean nonprofits can't maintain a competitive compensation strategy. They just have to be more creative about it. This can include enticements such as generous vacation time, flexible work scheduling and high-profile contributions to great causes.

"If they're in a negotiating situation, people can do many things to set themselves up to work for a nonprofit organization," DeMay said. "If very senior-level people can bring a certain skill set to a nonprofit, that organization can think about creative work arrangements that might work for that person."

Also, incoming leaders should do their homework to make sure that they're getting equitable compensation according to their situation, she added.

"That means doing some of their own benchmarking with similar organizations in terms of size and geography. Once they have a general sense of that, it will help ensure that the person coming into the nonprofit world will make a good, informed choice."