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The PeopleCap Playbook

Timely insights and actionable people strategies for leaders.

History of Underinvestment in Talent

pothole and traffic cones in road

The nonprofit sector has a long history and culture of underinvesting in talent. In the name of financial stewardship and the doctrine of mission, nonprofit employees have existed within a culture where working harder for less money is a badge of honor. As admirable as this commitment to working for the benefit of our communities and others has been, over time the ratchet effect of lower wages in ever tightening budgets, lack of investment in professional development, and the organic burgeoning of nonprofit roles in which people continue to take on more and more responsibility without increase in compensation has led to the sector falling far behind in talent compensation.

Beyond the obvious issue of fairness in compensation, this long-term underinvestment in talent threatens to collide with the low unemployment in our country currently, growth in the number of nonprofits, increased competition for funds, and an aging leadership population in the nonprofit world. The result? A perfect storm of events setting up a climate of tough competition for talent. Add to that the fact that employees cite a lack of growth and development opportunities as one of their top reasons for leaving an organization, and the lack of investment on multiple fronts over the last decades, is suddenly catching up to us.

According to Stanford Social Innovation Review, “the majority of our survey respondents (57 percent) attributed their retention challenges at least partially to low compensation, an issue that can feel daunting to many nonprofits. Lack of development and growth opportunities ranked next, cited by half of respondents as a reason that leaders leave their organizations (Landles-Cobb et al.).”

Nonprofits that fail to invest time, energy and resources into developing their existing talent will begin to see them depart. Nonprofits that fail to bring their employee compensation structures into a solid market range will begin to lose valuable talent and will struggle to fill empty positions without increasing the salary for that position. When you consider the high financial and opportunity costs of losing a key player, you are left to believe it would be more fiscally responsible and much more beneficial to your organization as a whole to raise salaries to proactively mitigate the loss of great employees. Additionally, prophylactic investment of time and money into professional development can alleviate turnover concerns while further growing the talent you need to achieve your mission and develop a pipeline of future leaders.

People drive results. No organization can outperform its talent. Your people are the key variable for you to achieve your vision – don’t drown in the mindset that you can’t afford to pay your people a market rate or that you can’t invest in their growth. Your organization will pay the cost of either pursuing your goals without the right talent or the cost of turnover. Either way, you risk hobbling your ability to serve your mission.

“The transaction costs alone of finding and attracting a new employee, particularly at the senior level, can be as high as half of her annual salary. But the costs to an organization in productivity, fundraising, and distraction (as members of the board and senior team turn to recruiting and onboarding critical staff positions), can add up to tens or even hundreds of thousands of dollars more (Landles-Cobb et al.).”

The moral of this story? Assess your compensation structures for existing employees and the salaries you offer when hiring new talent. And, create an intentional plan for growth and development for all of your employees. It will take some time on the front end, and you will likely wince at the increase in your budget line for salaries. But…you will set your organization up to more successfully weather the nonprofit talent crisis and allow your team and your nonprofit to thrive.