Non-Profit Article: The Benefits of Incentive Compensation In Challenging Times

Non-Profit Article: The Benefits of Incentive Compensation In Challenging Times

May 15 2013

By Sandra Pace

Non-profit boards are making executive compensation decisions in an increasingly difficult environment.  More and more funding sources are uncertain given the state of the economy, reduced government budgets and potential limitations on itemized deductions for higher- income earners.  As a consequence, many organizations must do more with less.  Particularly at non-profits, shrinking budgets can impact compensation levels for senior executives whose talents are needed to steer the organization through challenging times. But do they have to?

Incentive compensation is used by many for-profit companies and some non-profit organizations to focus executives on organizational goals and provide compensation upon achieving such goals.  Incentive pay is often considered synonymous with rewarding employees for making the organization more money, a concept that does not typically translate in the non-profit mission-based context.  However, evidence suggests that incentive pay usage may be increasing among non-profits.  A study of 208 New York-based non-profit organizations showed only 19% paid an annual bonus to their top executive in 2010/11, but this actually reflected an increase of 33% over 2009/10. [more…]