Recently, the American Red Cross came under fire for exploitative conditions. In essence, workers described an organization that paid its workers minimum wage and experienced understaffing amidst a pandemic. When compared to for-profit businesses, nonprofits don’t offer their employees the same type of compensation. Yet, the demand for workers in this sector is high, and people want to work in it because it’s fulfilling and noble. Organizations claim they can’t afford to pay competitive nonprofit compensation like they would in a for-profit company. But, this is an excuse that’s happened for decades.

Nonprofits typically rely on donations and grants, which make up a large percentage of their budget. And like any other business, they spend money on facilities, equipment, supplies, and fundraising. Of course, nonprofits must be mindful of their spending—particularly since they need to retain the confidence of their donors. However, it’s false when leaders claim that they can’t pay competitive nonprofit compensation to workers. Often, it’s willful ignorance at best and downright deception at worse when leaders claim they can’t afford good salaries.

Unfortunately, this topic continues to be an issue that doesn’t get resolved in the sector. Considering that nonprofits don’t typically pay any income tax, and they serve the social good of communities, shouldn’t we require nonprofit compensation that’s fair and equitable? Why is the dated idea that if you work at a nonprofit, you’re working for a ‘higher calling,’ which should be enough? People still have to live, pay the bills and take care of the responsibilities with their families. The reality is that nonprofits can balance investing in employees and staying financially solvent.

The Misleading IRS Nonprofit Compensation Claim

Nonprofits constantly juggle their spending. Nevertheless, the need for employees is high in this sector, and many want to work there because it’s fulfilling. Still, social sensibilities have changed (thankfully), and as a result, people are much less patient to get paid a wage that isn’t sustainable. For many decades nonprofit leaders claimed that the IRS doesn’t allow for competitive compensation. However, that’s not accurate. In my book, The Future of Fundraising: How Philanthropy’s Future is Here with Donors Dictating the Terms, I wrote the following as it relates to this fallacy regarding the IRS.

“The IRS guidelines state, ‘Reasonable compensation is the value that would ordinarily be paid for like services by like enterprises under like circumstances. Reasonableness is determined based on all the facts and circumstances.’ In other words, reasonableness gets measured in varying ways, despite the availability of compensation reports for the industry. Therefore, one of the best things any nonprofit professional can do during salary discussions is to obtain the latest compensation reports published by organizations such as Guidestar, The Nonprofit Times, National Council of Nonprofits, or Bridgespan. However, others exist, which are also good and may also be local to your city or region of the country. The bottom line, however, is that all nonprofit professionals should always know their worth.”

In short, the IRS never states anywhere that people cannot earn a competitive salary. Unfortunately, some nonprofit leaders still use this to excuse not paying a competitive nonprofit compensation. It’s misleading at best and just plain improper. It especially happens when new people enter the industry and don’t know enough to challenge that statement. Sure, nonprofits must not pay outrageous wages that are out of line with industry standards, but underpaying is not what nonprofits should do to their workers.

Social Good Organizations are Businesses

The most important thing that people need to realize about nonprofit organizations is that they are, in fact, businesses. There’s a fallacy that the idea of operating a nonprofit is a type of business model. It’s not. A nonprofit is a business. The critical difference between them and a for-profit company is the IRS tax designation allowing nonprofits to receive tax-deductible donations and the entities themselves not paying taxes (generally speaking).

The reality is that there’s immense competition now for nonprofit organizations. In other words, they’re no longer the only game in town. For example, for-profit companies have increasingly incorporated social good benefits into their business models. Corporations and companies are trying to do things as they create their products and services that are socially responsible. The public now demands it of them. Business leaders understand that being socially accountable helps their brands get more customers.

Moreover, we have Certified B Corporations, social enterprises, and for-profit companies funded with social impact investment funds. Therefore, increasingly people understand that they don’t have to support nonprofits to make a social impact. As more people call out nonprofit organizations that don’t treat their workers well, more donors will move away from thinking that the only way they could support social good is through nonprofits. So, if nonprofit leaders want to compete in this environment, they have to pay a living and sustainable wage. It’s also the right thing to do morally.

How to Make Nonprofits More Attractive to Employees

Tip One: Offer competitive salaries

Nothing else is going to compare to a living wage. Therefore organizations need to pay competitive nonprofit compensation to their teams. Further, if you lead a nonprofit, you should offer benefits such as health insurance, retirement plans, and paid time off. If you work at a nonprofit and see that you aren’t paid a competitive nonprofit compensation after researching, you should look elsewhere.

Tip Two: Increase employee autonomy

Nonprofits typically have a lot of red tape and bureaucracy, making it difficult for employees to do their jobs well. If you want to increase productivity and creativity, give them more freedom and flexibility to do their work. For example, mental wellness is finally becoming a top issue for employers. Look into creating a positive organization that supports mental health, as other organizations leading in the effort.

Tip Three: Provide training opportunities

Offer your team an opportunity to learn new skills (especially technology and tools for the growth of your organization) by providing free training opportunities such as workshops or webinars on topics such as leadership skills, technology platforms, or fundraising ideas. This will help them grow professionally, increase passion and enthusiasm about their work, and help your nonprofit grow to scale. Further, professional development in the digital era is not something where nonprofits should skimp. Value your employees by giving them the skills they need for success—along with a competitive salary.

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