Incentive Pay is Coming to the Non-profit Sector

The Rise of Social Enterprises

Change is a constant in the world of work. Very few jobs remain constant overtime; just ask job evaluation experts. System changes are also constant; just ask IT consultants. Employment related legislation also tends to be in continual flux. Collectively these changes impact operational efficiencies and shape workplace behaviours.

At a macro level, the non-profit (NP) sector is also evolving. This evolution is shaped by factors within the sector, such as changed funding models and increased competition for the same service recipients. It is also shaped by the infusion of a growing entrepreneurial presence to address long standing social/environmental problems.  The traditional dichotomy of NP and private sector (PS) operations now has a hybrid offspring – the social enterprise. These hybrid organizations simultaneously generate earned income and address social or environmental causes.

Social enterprises (SE) have existed in a limited capacity for some time but mostly within larger NPs. For example, museums have traditionally derived supplemental revenue streams from their souvenir shops. Now, however, they are becoming more main stream within the broader Canadian NP community. The growing number of organizations that provide infrastructure support like the BC Centre for Social Enterprise and Centre for Social Innovation in Toronto are barometers SE growth.

The Business of NPs

With the growing presence of SEs, NP Boards will likely have increased dialogue around risk and financial management practices as their organizations ponder the leadership shift from a “non-profit” mentality to (at minimum) one of “revenue-neutral”. It is also more likely that Boards will reconsider the value of cross-sector partnerships as a means of supporting SE success. For example, they may look to partner with PS enterprises that have production/marketing/distribution expertise as a basis of both accessing expertise and mitigating operational risks. They may also look to these partnerships for financial support – through corporate citizenship Foundations.

From a human resource vantage, Board discussions will also need to consider the blend of leadership and operational skills required to manage NPs that have a SE component. Traditionally, most Executive Directors and direct reports have been promoted from within and tend to have program vs operational expertise. SEs may require more Board focus on external hires and coaching at the leadership level.

Risk/Reward Partnership

As SEs become increasingly prevalent Boards will also have to consider the merits of incentive pay at the leadership level. Incentive pay programs are essentially a leadership communications tool. They clarify the need for specific behaviours (e.g. service oriented vs results-oriented) and/or specific outcomes (e.g. efficiency gains). Implementing a SE component represents a significant workplace culture change and as such presents the perfect opportunity to introduce the concept of incentive pay in the NP sector – initially at the leadership level.

SEs, by virtue of their business foundation, amplifies the concept of risk taking within the NP sector – something that is not entrenched. The counter balance to risk is reward; this notion is well entrenched in the PS leadership thinking. If EDs are going to assume the risk of running SEs then shouldn’t they share (proportionately) in the rewards?

Leadership by Example

It’s most likely that senior leadership roles in government bodies that provide sector funding are in some form of incentive pay program. Furthermore, it’s also likely that senior leadership roles in some of the well-known umbrella organizations in the sector also participate in forms of incentive pay. It’s certainly no stretch of the imagination to consider that private donor wealth has accumulated from businesses that have used some form of incentive pay to support their business success.

SEs reflect a hybrid of NP cause and PS acumen. They represent an ideal “greenfield” space to further infuse PS thinking and approaches alongside the NP’s focus on a cause. SEs can act as a catalyst to introduce incentive pay into the broader NP sector.  For the key stakeholders noted in the preceding paragraph to not consider incentive pay within the context of SEs is akin to the parental adage of “…do as I say, not as I do”. At best, it’s a form of resisting dialogue or change. At worst, this form of thinking will continue to undervalue work in the NP sector as it clings to an increasingly archaic ethos that pay and performance should be disconnected.

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By Dave Nanderam, Managing Partner, ASSOCIUM Consultants. Through our collaborative approaches, innovative HR products and customized advisory solutions we impact four leadership priorities: managing risk, driving productivity, strengthening talent capabilities and supporting your bottom line. Let’s connect to find out how ASSOCIUM Consultants can help your organization.