The Strategies We Often Overlook: What is a Compensation Strategy?

Every nonprofit knows it needs a strategy. The “easy” strategies—the ones we all know to look for, focus on, or create—are often focused on mission, vision, impact, and market position (this is the change we want to see in the world, and this is the role we will play in effecting that change), or programs and services (these are the specific activities and offerings that will lead to achievement of our desired and intended outcomes).

Successful nonprofits also pay attention to operational strategy, devoting thought and time to identifying and strengthening the systems, policies, and personnel related to the running of the organization—its governance, finances, fund development efforts, marketing and communications, information technology, and human resources/talent. It is here that cash-strapped nonprofits are most often tempted (or forced) to cut corners. Facing overwhelming need in the community and the world, it is all too easy to focus one’s resources on programs and services and “bootstrap” operations, especially through periods of growth and even when large and objectively successful on the mission-advancement front.

There are risks to doing this, however, and these can be particularly pronounced in organizations that haven’t been able to devote sufficient time and attention to their talent strategy. At DRG, our mission is to help organizations search for, attract, and nurture innovative, diverse leadership for their organizations. All too often, we see organizations struggling to find and allocate resources to a truly strategic human resources function—one that can think critically about its organizational structure and how that structure supports and aligns with its culture and strategy; that can engage in meaningful succession planning and professional development; that can devote sufficient time and resources to hiring and onboarding; that can provide meaningful engagement opportunities and promotion pathways; and that can invest in creating, administering, and evolving a thoughtful, equitable, and values-aligned compensation strategy.

We have been gratified to see that compensation strategy in particular has been getting more attention lately, both within the sector as a whole and within individual organizations. This makes sense, given the events of the last few years. An organization’s compensation strategy both reflects and projects its commitment to diversity, equity, and inclusion, as well as its commitment to seeing and valuing the fullness of its employees’ lives; the critical importance of both has been made clear over the course of the pandemic and as issues of racial justice and structural racism have come to the fore. Arguably long overdue, this attention is prompting many difficult but thoughtful conversations—and in many cases leading to a range of truly strategic and impactful changes.

Two important caveats: First, compensation is more than just salary—though that is often what first comes to mind. Benefits are integral to compensation. The combination of pay and benefits is often called total compensation, or sometimes total rewards. You cannot fully and fairly assess your organization’s approach to compensation without considering all its components.

Second, it is not enough to assess and make practical decisions about what you will pay people and what benefits you will provide. Such decisions must be reflections of a larger strategy. When this is true, an organization should be able to answer a range of questions that go beyond numbers, insurance options, and paid time off policies. Some of these include:

• What values are guiding—and will guide—decisions about compensation? How are these reflected in the choices we have made and the policies and practices we have put in place?
• How does our compensation philosophy align with our organizational goals and budget?
• Where do we want to be in the market, with respect to compensation? How do we want our compensation to compare to that at other organizations in our field and/or region?
• How do we balance monetary and nonmonetary compensation, and how much flexibility will we provide—at hire and over time—to employees who might wish to better align that balance with their individual circumstances?
• How does our organizational structure and approach to roles and role definitions compare to others in the field? How do they present and provide opportunities for growth, development, and promotion? How do growth, development, and promotion impact compensation?
• When and how do we increase pay or adjust total compensation? What values and policies guide decisions about pay increases? How and by whom are such decisions made?
• What and how do we communicate about roles; role definitions; opportunities for growth, development, and promotion; the values that guide decision-making around compensation; opportunities for influencing and/or increasing one’s compensation; and the value of compensation—i.e., pay and benefits for one’s own role and for other roles within the organization.

We are inspired by those who are engaging in these conversations and as a result, committing to a more thoughtful, equitable, and holistic approach to compensation and culture. While doing so won’t address all of an organization’s operational strategy challenges, it is without a doubt a truly impactful start.

Author: Heather Gowdy

Heather Gowdy is Chief of Talent Services at DRG, where her focus and passion is helping organizations devote time and attention to their talent strategy.