Research by The Bridgespan Group highlighted that one of the key issues nonprofit boards and CEOs face is succession planning. The turnover rate at senior levels for nonprofits, the study highlighted, is huge. The top reason for this turnover? Low pay. More than half (57%) of survey respondents said that low compensation was at least a partial factor in the difficulty of retaining senior staff.
There are certainly other factors driving staff turnover in the nonprofit world, but compensation as a factor looms large. A recent Chronicle of Philanthropy article, “Low Pay is Driving Workers Away,” highlights the issue as a problem at all levels of nonprofit employment.
In a recent study that India Leaders for the Social Sector (ILSS) undertook with Indian social purpose organization leaders, many echoed the sentiment that retention of employees was a high-ranking concern within their institutions. On digging deeper, organization leaders shared that funding limitations adversely affected the organization’s ability to attract, retain and meet the talent’s changing needs and expectations with increased salaries and bonuses.
The same study also had us interact with leaders who had been able to retain their high-performing employees for many years. These were employees who had grown with the organization since inception and now held critical positions despite fairly modest pay scales. What enables these organization leaders to hold onto their employees over the long-term despite funding constraints and limited incentives such as bonuses, ESOPs to fuel employee motivation? We had Indian social purpose organization leaders share insights. But first…
While there is recognition amongst most organizations that their long-term success resides in its people, attempts towards improving employee retention are often reactionary. In the development sector, where working towards a mission is considered a reward in itself, and lower salaries are the norm, engaging employees in charting out learning and growth opportunities as they advance in their careers is often neglected. Another reason for the reactionary approach towards employee retention is that leaders are too fixated on day-to-day operations and lack the bandwidth to focus on more strategic organization-building priorities and investments in employee engagement.
On the other hand, most people within the sector find themselves deeply aligned to the mission of creating a better world and often take pay cuts to work in it. However, in spite of the high mission alignment, organization leaders expressed that talent retention continues to be a challenge within their organizations that they don’t know how to solve for, despite their best efforts.
Employee turnover is an expensive proposition. The costs to replace an employee are estimated by Gallup to be 150% of an employee’s annual salary and benefit not to mention the intangible costs around lowered overall employee morale and decreased productivity. In the nonprofit sector, Dasra’s ‘Talent First’ report highlights that inability to offer higher compensation contributed to significantly high attrition rates within organisations. However, compensation itself does not determine rates of employee retention within organisations. Deloitte’s Talent Survey 2020 discovered that employee retention was also significantly influenced by non-financial elements such as: trust in the leadership to execute on the outlined strategy and being engaged with meaningful work. Additionally, benefits such as flexible work arrangements and strong growth opportunities determine whether they choose to stay with their employers. This is especially true for post-pandemic recruitment as we see employees opting for employers who offer these benefits.
Our research underlined the following key challenges that organization leaders were struggling with vis-a-vis employee engagement and retention:
While there exists great mission alignment and a vocation that employees often feel motivated to go above and beyond for, it is necessary to keep in mind that nonprofit employees too have bills to pay, aspirations for their own lives, and seek to grow and achieve higher levels of self-actualization through their jobs. In that sense, it is necessary to understand that these jobs are also a source of livelihood for those who work in it. The development sector loses talented people often because it is mired in the mentality of scrappiness that undervalues and underinvests in the same people who further the cause of justice and social equity: the works who do the work every day.
Understandably, the reasons for the chronic underfunding are myriad and complex stemming from the preference that overheads involving infrastructure building and people-related investments are minimized (more about raising funding for people development in a subsequent article in this series). And being realistic, the expectation is not that the nonprofit sector can compete with the corporate sector in terms of pay overnight (although one might argue as to why not?).
However, knowing that the evangelization of the funder towards recognizing the importance of investing in talent might take a while, what some nonprofit leaders and funders are largely getting right is the recognition that while the salary they offer might not be at par with what the employees deserve to be paid for their contributions, they do not also expect their employees to be martyrs. A recognition that their motivation to the cause is a highly valuable resource that must be nurtured and kindled by ensuring that their efforts are acknowledged and rewarded, albeit in non-financial means is a critical mindset that enables leaders to proactively think through strategies to retain and engage committed people in their organizations.
In the study we undertook, with organizations that were able to retain employees long-term, organization leaders shared that they prioritized the following:
Many employees at nonprofit organizations feel deeply aligned to the missions of their work in the sector and have embraced the idea of opting for non-cushy jobs, non-lucrative salaries, and pay cuts to work in the sector. With this, however, nonprofits face a bind in terms of keeping their employees engaged with limited abilities to fuel motivation through financial incentives. The research study, therefore, highlighted the importance of non-financial factors such as flexibility, growth and development opportunities, healthy work culture, transparent communication, and wholesome employee recognition and feedback mechanisms as means to ensure employees are aligned, engaged, and motivated by their workplaces.
Taniya D’silva and Swechha Sikaria are members of the ILSS Team focused on research and program development around People Practices in the Social Sector. For more information on the research insights, write to us at firstname.lastname@example.org.
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