Compensation

The Importance of Compensation Benchmarking

The landscape for nonprofit organizations is changing. In our current job market, it is essential for your organization to stay competitive in salary and benefits in order to recruit and retain the best individuals. Compensation benchmarking is a quantifiable and objective way for nonprofits to compare its compensation package against those of other similar organizations in its geographical location.

Compensation benchmarking is the process of collecting and then analyzing data based on:

  • Organization’s industry
  • Geography
  • Job titles
  • Job families,
  • Budget size

Nonprofits conducting their own compensation benchmarking must first find reliable and valid sources for data. The three best options are published surveys, online data, and custom surveys. Ideally, you want to use at least two sources of data when setting your organization’s salary ranges.

Once you have collected and analyzed the data, you need to define your nonprofit’s compensation strategy. In other words, you need to determine if your competition will be above your peers, meet them, or fall behind. If your organizational goal is to drive performance and reward employee longevity, you need to set a strategy that is aligned to this goal. Once the strategy is set, make sure you are transparent about it so that your current and future employees understand how compensation is provided.

The next step is to match your positions with that of the data. You can’t just look at the title, you need to understand what the position requires in knowledge, skills, and abilities. You will also need to determine if you will benchmark one position in a job family or will you benchmark all positions.

Once this is completed, then you will need to determine your pay ranges. This is set by determining the midpoint for each position. Once you have your midpoint, then you can determine the minimum salary and maximum pay for your positions. When determining the range, you need to consider two things:

  • Number of years a person spends in the position
  • Length of time for the person to become proficient in the role

A sample guideline for pay ranges are:

  • Hourly: 30-40%
  • Salaried: 40-50%
  • Executive: 50-60%

To calculate your minimum range, you need to:

  1. Dive your range spread percentage in half (this is your value for xx)
  2. Take your midpoint salary and divide it by 1.xx
  3. For example, a salaried midpoint of $40,000 and the range is 45%
    1. $40,000/1.225= $32,650

To calculate your maximum range:

  1. Take your minimum and multiply it by 1.xx (xx equals your range spread)
  2. Using the example above: $32,650 * 1.45 = $47,340

Many nonprofits do not have the time to conduct a thorough compensation benchmarking process, if your organization needs assistance, please do not hesitate to contact me at ctorma@charmainetorma.com

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