What to Expect in Comp & Benefits in 2017
What to Expect in Comp & Benefits in 2017
As we start a new year, Humentum takes a look back at compensation and benefits in the sector and what organizations might expect in 2017. The demands on compensation dollars to retain staff and compete for new talent will likely test many organizations as they try to control one of their largest budget expenses: compensation and benefits. What’s ahead for salary increases, alternative rewards, and employee benefits?
Salary increases modest
For the past five years, the majority of HQ positions have seen modest salary increases, usually under 5%. In 2016, approximately 60% of the 100+ US-based positions benchmarked by Humentum saw increases of under 5%. This is in line with Humentum’s annual salary increase poll, where for the past three years the majority of organizations have typically budgeted 3% for salary increases.
Recently, we have seen an increase in NGOs reviewing their salary structure to ensure alignment with their compensation philosophy, market competitiveness and internal equity. As donors, government regulators, and the court of public opinion weigh in on non-profit compensation, organizational leaders are taking time to benchmark salaries to ensure reasonableness.
This year, we anticipate that there will be only modest salary increases, particularly for organizations reliant on US government funding given the current uncertainty with a new administration.
Alternative rewards on a slight rise
While private sector employers use a variety of alternative reward programs—payments in addition to base salary such as bonuses, incentives, gain sharing, and stock options to build their compensation programs and reinforce engagement—nonprofits typically focus on base salary as the anchor of their compensation and their inspiring missions as the means of engagement. For over 10 years, the number of NGOs reporting the use of alternative rewards programs has fluctuated; over the past three years, we have observed a small but steady increase.
In 2016, 38% of our survey participants (52 of 138), reported having an individual bonus/incentive program which is primarily made available to all staff. Members reported that bonuses are primarily based on individual performance and contributions while a small group of organizations also provide bonuses as an incentive to join the organization or stay to the end of a project. The bonus is usually calculated as a flat dollar amount. Other types of alternative reward programs being offered by a smaller number of organizations includes employee referral bonus programs to encourage staff to refer candidates for open positions and recognition programs which primarily award individual accomplishment.
So will bonuses become a more accepted reward? For many years, even the term bonus was avoided by much of the sector but that seems to be changing. Several Humentum HR executive members have linked the expansion of these alternative rewards practices to the increased demand for new skills and jobs within NGOs. Specialized new business development positions, for example, are also in demand by large government contractors. Thus, in order to be competitive, some organizations are emphasizing the need for performance-driven pay through the use of performance-based incentive plans.
As more talent is hired by organizations from outside the sector and more for-profits begin to work in the international development and relief space, we anticipate the continued adoption of alternative rewards to attract and retain this talent.
Benefit packages competitive
International nonprofits continue to offer competitive benefits that create an attractive total rewards package to prospective hires. Almost all organizations offer a retirement plan with 46% providing a total employer contribution of between 1 and 6%. The great majority of organizations provide life insurance with 40% providing basic group term life insurance that is 2 to 2.9% of the employee’s salary. There has been a slight increase in organizations offering a separate paid leave policy for the birth of a child (75%). While organizations offer a variety of health insurance options, there have been some noted changes in order to control costs. Over the past five years, the number of organizations paying the full premium for employee health coverage has decreased from 40% to 28%.
One member noted that when speaking with candidates, their organization emphasizes the total remuneration package, saying, “Benefits have always been a selling point and can be a key differentiator when a candidate is considering offers between nonprofit and for-profit employers. The long-term value built by a generous benefits program—especially in the areas of health and retirement benefits—could outweigh the immediate gratification of a higher salary.”
We anticipate that benefit programs will remain relatively unchanged in the upcoming year.
New Funding, New Rewards: Now more than ever, organizations are reviewing their funding portfolio for diversification. Moving beyond traditional grants and contracts funding, there is growing interest in impact investing. For organizations that are already fund programs through impact investing, new skills and talent have been required. Thus, we anticipate that as this funding model gains momentum, the need for new skills and talent will result in revamped rewards packages. (Learn more about the INGO Impact Investing Network formed in 2015 by Humentum, the Aspen Network of Development Entrepreneurs, Pact, Mercy Corps, and GOAL here.)
FLSA Overtime Ruling: This past year, many member organizations reviewed staff salaries making adjustments in preparation for the revised Fair Labor Standards Act (FLSA) overtime rule. We all know that at the eleventh hour, a federal judge put the brakes on the Department of Labor’s rule that would have doubled the FLSA’s salary threshold for exemption from overtime pay. By the time of this ruling, many organizations had already either reclassified positions as non-exempt or alternatively raised salaries to meet the new threshold. While no one knows the fate of the overtime ruling, the duties test has been the law and proper classification of employees as exempt or non-exempt continues. While we anticipate that this may stay on hold based on the current sentiment of new administration, for those that took the wait-and-see approach, we do recommend the review of employee classification to avoid a FLSA lawsuit.
Wellness in 2017: In a recent WorkForce magazine article on “What Will Wellness Look Like in 2017?” the author noted that greater numbers of employers are recognizing the need to look at health holistically, beyond physical health to include mental, psychological, and sleep health One wellness program that was noted as gaining a lot of attention is mindfulness programs. This type of program can be used as a preventive measure for stress, anxiety, and difficulties with concentration. Leading insurance companies such as Aetna have reported health care cost savings with these programs. Given the recent uptick in organizations reporting higher employee anxiety and stress, we anticipate that member organizations will be exploring with their Employee Assistance Providers what types of mindfulness programs can be offered to their staff.
Some practical guidance in 2017
Three tips for 2017:
1. Gather benchmark data on an annual basis and test salaries to market. We have seen that years of neglect can be costly to organizations in trying to catch up to market. Note: Humentum offers annual benchmarking data for US staff, expat, and third-country national staff.
2. Review your benefits, looking beyond just the traditional offerings and highlight benefits that make you an attractive employer.
3. Compensation management is a technical skill which includes both art and science. Mistakes can be costly, either overpaying or underpaying positions. Many organizations do not have internal specialists. If you need to boost your in-house skill, consider Humentum’s Compensation Management workshop.