Since the early 1970s, wages in the United States have stagnated, meaning that increases in compensation have had little to no growth over a period of time. Of course, this is not to say that wages have not gone up at all; hourly wages have increased a total of 17% between 1979 and 2001. Unfortunately, these meager wage increases are not keeping pace with productivity or inflation. Then, add the highly competitive job market due to the low unemployment rate into the mix for non-profits looking to recruit and retain workers, and filling crucial roles in the organization becomes nearly impossible.
Non-profit organizations strive to benefit the community, often through benevolent and altruistic desires, with no intention of turning a profit. Instead of developing new products or services to charge their customers more money, their mission is so compelling that people willingly give donations to support their efforts. That carries an enormous weight for the financial team – determining how to move the mission forward and pay the staff appropriately. The next time your non-profit begins the budgeting process, consider these factors to ensure wage stagnation is not pushing the most valuable resource – people, out the door.
Budget Projection
When building a budget, making a realistic revenue projection for the upcoming fiscal year is essential. Projecting too high could put the organization in a financial crisis, and projecting too low could risk not meeting its full potential to accomplish the mission. Determining how much of the budget to allocate to compensation depends on an accurate estimate of income.
Use Metrics To Evaluate Staff Size
Determining the right amount of staff is tricky; how do organizations know when to rightsize or downsize? In the church world, metrics like staff-to-congregation ratios and the percentage of compensation to the operating budget provide insight into understanding if the church is over or understaffed. For example, a healthy church has about 75:1 congregation to FTE (Full-Time Equivalent) staff person. A church with a 40:1 ratio should evaluate its staffing situation. Often, overstaffed organizations spread their limited compensation dollars to too many people exacerbating wage stagnation.
COLA and Merit Increase
It’s not your imagination; the cost of everything is going up. The latest Bureau of Labor Statistics information shows a 12-month CPI (Consumer Price Index) at 6% (Feb. 2022-Feb. 2023). One way to retain and recruit top talent is to factor a COLA (Cost Of Living Adjustment) into the budget. Start with a 3%-5% increase as a standard. Putting in this kind of increase is easier when you have an accurate income projection, and the staff size fits the organizational needs. The COLA is for all employees when building the budget, but a merit increase is different. A merit increase is in addition to the COLA for the high producers who have exceeded expectations and positively impacted the organization. During lean times, it may be challenging to include merit increases, but avoid making that the norm for the organization – that’s wage stagnation.
Historically, non-profits are known for paying their employees less than their for-profit counterparts. But that doesn’t mean it has to remain that way. Taking positive action to account for every dollar donated to the organization through a comprehensive budget is the first step in fighting wage stagnation. Next, determine the correct staffing level for the organization. Overstaffed organizations spread their limited compensation dollars to too many people. Finally, be intentional about budgeting a COLA for existing staff and merit increases for exceptional performers. For non-profits to achieve their mission, it takes talented and dedicated employees; it’s time to compensate them for their efforts.
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