“Variable Pay” All the Rage Even in Nonprofits?

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November 6, 2012; Source: Washington Post

The Washington Post reports that employers are awarding more bonuses and performance-based pay rather than pay increases in order to “incentivize workers.” Apparently, human resource experts (don’t you just love them) say that this is popular because it allows more flexibility and creates lower fixed costs. Bonuses and performance-based pay are grouped in a category of “variable pay” and, according to a study from nonprofit research firm WorldAtWork, the practices were used by 82 percent of employers this year as compared to 79 percent last year. Another survey by Aon Hewitt indicates that, this year, companies directed 12 percent of their payroll budgets to variable pay and only three percent to salary increases.

I am unsure how much weight to give to this report and I could voice an opinion here but I wonder what you nonprofit workers think of this trend? Is it fair? Do you find it more in use over time? Let us know what you think. –Ruth McCambridge

  • Keenan Wellar

    For many nonprofits there really isn’t another realistic option.

    I would not see these as a “bonus.” I would see it as: “Your salary has not been increased because we do not have a long-term revenue stream to sustain it; however, we do actually have the money in the bank at this time and you’ve done great work and it’s reasonable that we provide you with additional compensation. We just can’t guarantee it every year.”

    One term I’ve heard that might account for this is “wage enhancement” or “salary enhancement.” It’s definitely not accurate to call it a “bonus” because I really see it is a one-time payment in lieu of a salary increment.

  • Mitch Bruski

    We have used this in our mid sized community based non profit mental health and senior services for over 15 years. Though it takes a great deal of time and effort to come up with reliable metrics, we have found that staff overwhelmingly appreciate bonus potential. While using this method does reduce fixed costs for administration, if done properly, we have found it adds to organizational buy in, increases commitment and productivity and adds to the overall income potential of people who work in an underpaid setting. The success is based on how variable is used, not that it is used.

    Staff still get a base salary and there iare two levels of bonus pay. One is team based and if the team makes its target, staff share in a modest bonus. Some staff (20%) are content to let it rest here. Others want the opportunity to add up to an additional 20% to their income in bonus. A few can be eligible for substantial bonus. Rather than creating negative competition, we have found that giving staff these options alows them to decide how much to invest themselves in variable pay efforts and it serves to increase their feeling of participation and control over their professional lives.

  • Dawn Watkins

    While this is common, as a new ED of a very small non-profit, I”m not sure I’d use it without very clearly outlined guidelines on the criteria and then very clear documentation regarding theprocess behind the decision. To answer your question, I’m not sure it’s “fair” without this ethical paperwork trail. I’m not so sure about using this to show or create lower fixed costs as that seems to set you up for a non-sustainable growth plan over time.