in a nonprofit organization brings both material and nonmaterial
rewards. Although some nonprofit organizations do not pay (or are
unable to pay) market wages, the benefits of working in a nonprofit
often outweigh the drawbacks for many employees.
the United States, nonprofit or charitable organizations such as
foundations, churches, arts organizations, universities, and even
some hospitals, are exempt from federal income taxes. Although the
range of their services is rather broad, these groups have in common
a mission to provide a benefit to a constituency that is more important
than bottom-line profits. Therefore, endowments and annual giving,
rather than the sale of stock or debt, typically support their operating
budgets. Even though their tax status may suggest otherwise, nonprofit
organizations can be financially successful.
of tax-exempt organizations
Section 501 of the Internal Revenue Code details the types of organizations
that are exempt from tax. Here is a sample of the types of organizations
exempt from federal income tax.
or educational organizations
whose purpose is to foster national or international amateur sports
for the prevention of cruelty to children or animals
legislative lobbying organizations
agricultural, or horticultural organizations
retirement fund associations
life insurance associations
corporations organized under an Act of Congress (e.g., The FDIC)
of nonprofit compensation favors benefits over cash
Some people think employees of nonprofits are all unpaid volunteers,
but this is not the case. Although nonprofits often have volunteers,
many nonprofit organizations, and most larger ones, have paid staffs
like any other business.
salaries at the strongest nonprofits rival those at for-profit corporations,
and some nonprofits even conduct or participate in compensation
studies to ensure their ability to compete for the best talent,
especially in regions with strong economies. For example, the Massachusetts
Institute of Technology (MIT) recently completed a rigorous study
of its compensation practices and adjusted the pay ranges for many
jobs as a result.
of nonprofit organizations don't receive stock options, since there
are no shares to own, and they are often ineligible to receive bonuses
since there are no profitability targets to reach.
they often receive attractive benefits packages which could include
generous vacation time and sick pay, low premiums on medical and
dental insurance, good retirement plans, tuition reimbursement,
and sometimes a convenient or flexible work schedule without significant
overtime. Universities are also able to offer the use of facilities
such as gyms and libraries, and sometimes membership in credit unions
with guaranteed low-interest loans and other attractive features.
perks lure executives to nonprofits
Some people believe that the people who hold senior positions in
nonprofit organizations should be paid modest wages because the
work of the organization is charitable. But those who argue the
contrary offer the following rationale.
because an organization does good work doesn't mean its people
should work for a discount. People should be paid a fair wage
for their work. People who are paid a fair wage do a better job
and stay with the organization longer.
appropriate benchmark for a nonprofit executive's job is a for-profit
executive's job, since this is the talent pool for which nonprofits
pay structure at a nonprofit organization, like that of a for-profit
company, begins with the compensation of the top executive. If
he or she is paid less than market, it will disrupt the internal
equity of the organization and everyone will reach a pay ceiling.
compensate for what they cannot offer executives, many nonprofits
have begun offering bonuses and nonqualified deferred compensation
programs that are like 401(k) programs except that there is no cap
on the contributions an executive can make. Some nonprofits have
gone so far as to create plans that operate like regular stock option
plans, but the underlying equity is shares of a mutual fund or a
stock portfolio in lieu of stock in the nonprofit organization.
These kinds of programs are most likely to be seen at the types
of nonprofits that operate most like for-profit companies, i.e.,
foundations and hospitals.
government pays generous benefits
Of course, the largest nonprofit organization is the government.
Federal, state, and large municipalities are among the best-paying
government employers. Although executive pay in these organizations
typically tops out between $120,000 and $150,000 per year - much
lower than at comparably sized corporations - pay for less senior
government employees tends to be more competitive with that of for-profits.
government is one of the few employers of any type that provides
employees with rich retirement and health and welfare benefits.
The federal government still provides free family health and welfare
benefits at zero cost to employees - very rare in corporate America.
Moreover, government employees can retire at age 55 and still receive
a pension benefit equal to 60 percent of final pay if they have
30 years of service. This pension benefit is cost-of-living-adjusted,
protecting it against inflation.
the private sector, employee retirement benefits are normally reduced
by 50 percent or more for retiring at 55. Corporate pension benefits
are rarely subject to cost-of-living adjustments, so the value of
the benefit decays over time because the dollar amount is fixed.
Further, the prevalence of such pension plans has been steadily
declining in the past ten years.
create jobs for people with skills that benefit society
Unique due to their charters, nonprofits offer employment to people
with special skills such as musicians, artists, clergy, scholars,
and doctors. But just as important to their missions are the employees
who perform functions such as fund raising, proposal writing, finance,
marketing and accounting. For many employees of nonprofits, the
reward for a job well done is not just the direct compensation,
but also the happiness derived from fulfilling the unique mission
of that organization and serving the community.
Dwight Ueda, Salary.com contributor