Show Me the Money?

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Throughout this issue we’ve emphasized all the reasons people work in nonprofits apart from material rewards—reasons such as purpose, values, and ideals. Most people drawn to human services and other nonprofit-type activities aren’t primarily interested in making a great deal of money. They benefit from feeling that they contribute to an important element of society and perhaps from following their true vocation—in other words, they are intrinsically rather than extrinsically motivated (see Intrinsic Motivation Box).

In education, for example, factors other than pay contribute greatly to teacher retention. A recent study of teacher salaries by Education Week has shown that they are shockingly low compared to those of equally qualified workers in other fields, yet many frustrated teachers cite lack of administrative support and a poor overall school environment as the main reasons for leaving a school. And beginning teachers who are dissatisfied with student discipline or the school environment are twice as likely to quit the profession.

Then again, intrinsic rewards won’t feed you, clothe you or pay your rent. Economists Christopher Ruhm and Carey Borkoski confirmed that the average weekly wages are 11 percent lower in nonprofit than in comparable for-profit jobs. And while the tradition of low-salaried workers in this sector is hardly news to most of us, Don Palotta, a businessman and originator of the 3-day AIDSRide fundraiser, asks, “Where is it written that changing the world ought to be a low-paying job?”
What about the siren call of high salaries outside the sector?

Although many nonprofits are worried about recruiting and retaining skilled staff in this tight labor market, there is not much evidence to support or reject the idea that nonprofits face stiff competition from for-profits and government. Again, nonprofits offer a different and valuable experience, and in some industries, nonprofit workers earn as much as or more than their for-profit counterparts. When they earn less it is typically within two to four percent of the for-profit workers, according to Ruhm and Borkoski. So retention of nonprofit workers should be a tractable problem (see the previous article by Ruth McCambridge).
Recruitment is another matter. Salamon and Dewees present evidence in the article on page 6 on the rapid growth in the nonprofit sector. This rapid growth could cause the demand for nonprofit workers to outstrip the number of people intrinsically motivated to work for nonprofits (and for a lower wage). On the other hand, the rapid growth may be reflecting increased interest among people to work for nonprofits. The effect on recruitment of the sector’s demographic changes will become apparent in the coming years.

While environmental factors play an important role in recruitment and retention, pay perceived as glaringly insufficient may frustrate nonprofit employees so definitively that they divorce themselves from the work either by leaving or by significantly disengaging. Even people working for a cause they believe in don’t want to receive a signal through their paycheck that their work is not valued. Indeed, studying nonprofit unionization, Jeanne Peters and Jan Masaoka discovered that “Inequity between their own compensation and that of workers in similar government jobs was more important than the absolute level of compensation.” (See their article on page 12.) Likewise, compensation that seems unfairly assigned within an organization can create a feeling of mistreatment. Employees who feel poorly or unjustly treated—either through inadequate pay or in some other way—will be hard pressed to find a reason to stay or stay fully engaged.

Whether it’s a steep pay gap between the lowest and highest-paid workers in the organization or increases based on subjective assessments, compensation policies that fail to take into account nonprofit employees’ egalitarian preferences run the risk of estranging idealistic staff. For example, in recent times a Boston family services organization was rocked by turmoil in large part because its executive director earned many times the income of its skilled social workers in the field. To minimize discontent even in a field that doesn’t traditionally pay well, managers formulating compensation policies must consider the values of the people inside the organization—particularly when looking at the pay differentials inside the agency.

Unfortunately, in too many of our organizations, lowest paid staff may be working for wages that don’t even reach the poverty line. In some instances, the entire staff has willingly sacrificed salary demands as an investment in the organization’s mission. That’s a different situation than in the large organization where line staff doing the core work of an organization are paid less than a subsistence wage while higher-ups are quite comfortably compensated. Sadly, and in violation of public expectations of us as a sector, this latter situation is not uncommon. As a result, living wage ordinances have posed some thorny quandaries for us (see What is a Living Wage Box).

Many localities that have instituted living wage ordinances exempt all or some nonprofits, particularly organizations whose executive director receives a certain multiple or less of the lowest-paid employee’s salary (usually around six to eight times as high). Such provisions correctly reinforce the sector’s commitment to fairness—although some of us may argue with what should constitute an allowable differential if some of the staff are working for less than a living wage.

The issue becomes one of ethics. If we promote exemptions for nonprofits within living wage environments, how do we ensure that everything within reason is being done to address the problem of poverty-stricken workers in our sector?

In Detroit, researchers David Reynolds and Jean Vortkamp of the Center for Urban Studies and Labor Studies analyzed the effects of that city’s living wage ordinance on nonprofits in depth. (See the Effects of a Living Wage Box). They found little actual effect on most nonprofits, even among those that had resisted its implementation (and reported a major impact). For those that did experience a significant impact, the researchers concluded that a set of targeted policies could alleviate the effects. They concluded at the end of the day that “the experience of nonprofits does not provide a basis for either opposing a living wage law generally, or pushing for policies that exempt the nonprofit sector as a whole.”

In this sector we hold certain values. As we are trying to make the world a better place, we must start with that part of the world that is directly in our control. While nothing says that this sector should pay the highest possible wages to its employees, we have to make sure that pay is fair. Up to a certain point, highly motivated people will work for low pay if they perceive it as equitable within the context of their organization. If the pay is so low, however, that workers worry about paying the rent, they will certainly be less effective. Money should be used to help people give their best effort with an untroubled heart.

Intrinsic motivation comes from within; therefore it is also called self-motivation. In intrinsic motivation there is a natural relationship between you and the reason why you are doing something. For example: going to hockey practice because you enjoy the companionship of friends or putting extra effort into an assignment because you take pride in your work. Extrinsic motivation, also called external motivation, provides reasons for doing something that come from outside of oneself. For example, you are extrinsically motivated if you help an elderly person cross the street because you want people to admire or approve of you or if you study hard because you want to impress the lecturer. With extrinsic motivation, you become the object of the reward or punishment rather than the subject of the action.

The two types of motivation can co-exist, but the perception of a situation shifts depending on which motivation predominates. For example, a typed assignment will produce a better grade in addition to the pride in a job well done. But if a person were already intrinsically motivated to do a good job, extra warnings or bribing (more extrinsic motivation) could reduce that intrinsic motivation. One problem with depending too much on extrinsic or external motivation is that people will lose interest once the reward is withdrawn. On the other hand, we seldom do things only because we enjoy them, because we do have to earn a living and get on with others.

The living wage level is usually the wage a full-time worker would need to earn to support a family above the federal poverty line, ranging from 100% to 130% of the poverty measurement. The wage rates specified by living wage ordinances range from a low of $6.25 in Milwaukee to a high of $10.75 in San Jose. Living wage ordinances have been enacted in over 40 localities.
A living wage ordinance requires employers to pay wages that are above federal or state minimum wage levels. Only a specific set of workers are covered by living wage ordinances, usually those employed by businesses that have a contract with a city or county government or those that receive economic development subsidies from the locality. The rationale behind the ordinances is that city and county governments should not contract with or subsidize employers who pay poverty-level wages.
In addition to setting wage levels, many ordinances also have provisions regarding benefits (such as health insurance and paid vacation), labor relations, and hiring practices.

Source: Economic Policy Institute, Issue Guide on Minimum Wage: Facts at a Glance. (www.epinet.org)

The pay—it does affect the performance of the job… It makes me feel better about myself. It makes me want to work because I see what I’m getting for the work. You know, the quality of my work. I see it in my pay. If I don’t see it in my pay then you’re not caring about me, the work I give you. Don’t give me all this work and then not enough to take care of my family. —Worker covered under Baltimore living wage ordinance

Researchers Reynolds and Vortkamp contend that statements like the one above “make it clear that for low wage workers, the value and worth assigned to their work is clearly important to them. Implied in these statements is a reality, before the living wage, in which workers clearly did not feel they were being paid what they were worth. Indeed, low wage paying employers can produce a self-fulfilling prophecy. By paying near the minimum wage, they tell employees that they are not valued. The unmotivated employees then do uneven work and often do not stay long at the job. This, in turn, justifies to the employer their policies of low wages and lack of investment in their employees. And the cycle continues.”

Their findings about some employer attitudes about low skilled workers provide an excruciatingly clear sense of why we need to explore this issue further as a whole sector. The researchers reported that “nonprofit staff argued that the low wages reflected a lack of qualifications through some combination of workers being unskilled, not fully literate, hired out of prisons, or clients put on the payroll. Several claimed they had trouble getting good work out of employees covered by the living wage. These arguments over an employee’s worth point to the essential moral issue raised by the living wage law. Can a lack of applicable skills or a troubled background provide an adequate rationale for paying people a wage which places them in poverty?”

1. The Ruhm and Borkoski paper, “Compensation in the Nonprofit Sector,” can be found on the National Bureau of Economic Research site (www.nber.org). It is Working Paper No. W7562.
2. The Education Week report is called Quality Counts 2000. See (www.edweek.org/sreports/qc00/).
3. For more information on the living wage, see (www.epinet.org). The page includes a link to the Reynolds and Vortkamp paper, “Impact of Detroit’s Living Wage Law on Non-Profit Organizations.” Detroit, MI: Wayne State University. June 2, 2000.

Noémi Giszpenc is an associate editor of the Nonprofit Quarterly. She believes strongly in building democracy, especially in the workplace.