Remuneration – the Continuing Challenge for NFPs
All indications are that Remuneration will be a continuing challenge for Not for Profit/For Purpose organisations (NFPs) in 2024. NFP Leaders are expected to experience pressures in addressing the myriad and challenging remuneration issues. Some of the more likely significant challenges that leaders will need to prepare for in 2024 are:
1. Economic Uncertainty
Economic conditions remain volatile and, given the potential impact on an organisation’s financial performance, contribute to making it hard to determine what appropriate sustainable remuneration packages may look like.
- These uncertainties in the economy may influence decisions concerning the proposed salary structures as well as the inclusion of any reward and bonus programs.
2. Talent Retention and Attraction
Across some positions, salaries experienced quite significant change. Where an employee’s salary did not keep pace and remained low for a reasonable period, then this has emerged as a highly significant reason in an employee’s decision to leave their employer.
Given the availability annually of Enterprise Care’s NFP Remuneration Portal FY24 data, leaders need not be blindsided by having their employees experience any low salary issues.
In addition to being good management, it is also essential good governance practice to have your employee salaries annually benchmarked.
- Firstly, there is a need to know if your current salaries are in fact low. Likely, some will be around the ballpark, while some could possibly be up to 30-40% wide of the mark – either above or under.
- This is important information to possess. At least you know the challenge that faces you, and if you cannot meet the higher salary level for any or all of your affected employees, you can engage in an informed and realistic important discussion with employees to explore how together you may best address this issue – all is not lost.
- Never presume that employees are not aware of what salaries are on offer outside of your organisation or worse that it does not matter to them.
- Time and time again we are told salary is one of the critical drivers of why people change jobs. And wage transparency will only exacerbate this challenge, so it is best to get on the front foot in as some describe ‘the war on talent’. This is one that leaders ignore at theirs and the organisation’s peril.
- Of course, even though the salary issue may be only partially addressed, often there are other pressing issues present. Such issues as:
i) employees feeling overworked – this is not something that is simply an objectively measured issue, it is also about an employee’s perception and that is the starting point in any discussions. The feeling of being overworked is also a very significant contributor in employees deciding to leave their employment.
ii) an employee’s decision to leave is linked to an organisation’s culture.
iii) poor flexible working opportunities and arrangements contribute as well to an employee’s decision to leave.
- So, while salary is the number one driver, there are a few other factors that can be generally addressed by NFP leaders to seek to attract or at least fight to retain talent.
3. Regulatory Changes
Navigating the myriad of regulatory changes does mean NFP leaders have a sound understanding of the broad legal landscape and are in a position to proactively adjust existing remuneration practices to readily align with evolving laws and guidelines.
- An important change involves Gender Pay Equity Legislation. There is a heightened awareness of the scale and negative impact that income inequality visits on an organisation’s performance.
- Additionally, often a social responsibility component exists. This may prompt NFP directors and leaders to reevaluate their remuneration practices and adjust if needed to ensure fairness and equity.
This is intended to actively address the continuing gender pay gaps. Many organisations will for the first time need to be engaged and across the data that deals with gender and pay within their organisation.
- The community including more broadly stakeholders, as well as employees themselves, will be interested in how organisations approach and mange this area of their business.
- While CEO and executive remuneration levels have been left more to management, indications are emerging to show that Boards are becoming sensitive to the importance of their offering at least oversight across this important area of the organisation.
- Ultimately, it can be a matter of achieving and/or maintaining your organisation’s employee morale. Research reveals that pay disparities can directly contribute to the increased levels of employee dissatisfaction. This in turn will often lead to decreased productivity, sometimes quite alarmingly.
4. Performance Metrics and Measurement
Performance metrics and measurement play a key role in remuneration matters for several important reasons. Those metrics serve as the foundation for determining how employees are:
- influencing their motivation
- contributing to job satisfaction and
- the overall success of the organisation
It helps shape the appropriate remuneration packages and therefore it is important that the performance metrics are aligned with the organisation’s strategic goals and include additional considerations of:
- connecting remuneration to performance metrics to facilitate the incentivisation of employees and their direct contribution to the organisation’s optimal performance and success.
- offering an objective basis for determining compensation, promoting fairness and equity in reward distribution.
- providing a transparent basis for employees to understand what are the expectations needing to be met and therefore to encourage and support them in their striving to achieve organisational success.
- acting in a manner to encourage employees to either become and/or continue to be engaged, set challenging goals, and continuously improving their efforts and performance.
- contributing to increased productivity by providing a basis for identifying and adopting more efficient practices and/or processes by finding ways to be innovative along with more efficient ways to work.
- providing an objective basis for performance reviews, which significantly helps in reducing biases and subjectivity in the evaluation process.
Take Out Messages
It is arguable if in the past remuneration was treated as one-dimensional. However, today, remuneration is multi-faceted, complex, and having the potential for high impact on organisational health.
That is why ensuring absolute clarity in your remuneration program is essential. This can be achieved by having a high level of relevance, coherence, transparency, and appearance of effectiveness that employees both understand and have confidence in its integrity.
Of course, while maybe in the past, your remuneration program was a set and forget approach, it is now certainly not advisable. Rather approaching it on the basis of assuming a need to regularly review and adjust any of the remuneration program aspects will ensure that your organisation remains agile and responsive to evolving NFP remuneration market conditions.
In summary, each organisation is now challenged to establish, review, and maintain a NFP remuneration program that commits to being fair, transparent, objective, motivating, and performance-driven. It accommodates an alignment of both the individuals needs as well as that of team efforts. Finally, you can have the confidence that your remuneration program is directly facilitating employee’s efforts, feeding into the success of the organisation in achieving its goals, everyone assuming accountability, and contributing to the sustainability of the organisation.
Given a high proportion of NFPs seek to grow their revenue as a part of their strategic plan, then having the right remuneration program seems to be a non-negotiable board and leadership matter.
Organisations with a growth trajectory need staff and staff demand a remuneration program which reflects todays multifaceted elements. Those two are inextricably linked and are a big part of organisational health.[/vc_column_text]