It’s a competitive time to be a nonprofit employer. In 2022, more than 50 million workers quit their jobs to seek out new opportunities with higher pay, better benefits, and increased flexibility—and in the face of the Great Resignation and still-ongoing inflation, nonprofits in the United States (U.S.) have had to hike up salaries to historically high levels in order to attract and retain workers.
In the U.S., nonprofits reported average salary increases of almost 6% for all staff in 2022, according to the Nonprofit Times 2023 Nonprofit Organization Salary and Benefits Survey, which collected data from more than 750 organizations. Nonprofit CEOs saw an average salary hike of 5.72% between 2021 and 2022 with an average base salary of $150,471, according to the survey.
This massive spike in wage growth is indicative of a larger phenomenon: in the current labor market, employees know that there’s much to gain from switching employers—and employers are increasingly competing against each other to recruit and retain workers. From April 2021 to March 2022, the majority of workers switching jobs (60%) saw an increase in their real earnings, according to a Pew Research Center analysis of U.S. government data. Unsurprisingly, low pay was cited as one of the top reasons why employees left their job in 2021, according to a Pew Research Center survey from February 2022.
“Forty-nine percent of people believe they could make more money just by switching jobs right now,” Allie Kelly of Employ, a company that makes recruiting and hiring software, told Marketplace. “Thirty-two percent of workers feel comfortable quitting a job without having another lined up.”
Why are salaries increasing at nonprofits?
The 6% increase in salaries noted by the Nonprofit Times’ survey is significant. For the last decade, budgets for merit-based salary increases have remained steady at around 3%, according to global accounting firm BDO. The last time they were 5% or more was more than 30 years ago in 1991, according to the World at Work 2019/2020 Salary Budget Survey.
Historically strong inflation in 2021 and 2022 meant that your average 3% base pay increase would mean decreased purchasing power for employees. Meanwhile, the tight labor market of 2021 and 2022—a result of increased demand for services and a reduced supply of workers—gave employees greater bargaining power, increasing their ability to leave their job for better-paid work, and putting pressure on employers to raise wages in order to avoid losing workers to better opportunities.
Salary increase predictions for 2023
While average salaries at nonprofits shot up in 2022, surveys suggest that fewer organizations plan to give base pay increases in 2023 compared to the year prior.
According to Payscale’s 2023 Compensation Best Practices Report:
- 80% of organizations said they plan to offer pay increases in 2023, down from more than 90% the year prior.
- In 2022, 18% of employers reported plans to increase salaries by more than 5%. In 2023, just 11% do.
Overall, 58% of organizations say they are addressing inflation with base pay bumps as well as increasing the rate at which they review pay and give pay increases. Employers are also moving away from once-a-year merit-based salary increases, and towards more frequent salary conversations: the number of organizations that plan to give formal pay increases twice annually increased from 4% in 2022 to 11% in 2023.
“Although we may enter a recession in 2023, attracting and retaining talent looks like it will remain a top challenge for organizations,” Amy Stewart, Payscale’s Associate Director of Content and Editorial, told Yahoo! Finance. “Compensation and pay progression are key factors in the employee experience and will take center stage in 2023.”
Notably—Payscale’s survey also noted a sharp increase in the number of organizations considering pay transparency laws as a factor in base pay increases.
In 2023 a handful of states including California, New York, Washington, and Rhode Island passed laws requiring employers to disclose salary ranges for open positions. Employers in these states should prepare for an increase in workers asking for pay raises and negotiating for higher salaries, or risk them leaving when they discover higher-paying opportunities.
“Wages and salaries advertised in job postings on Indeed are a potential canary in the labor market coal mine,” Nick Bunker, head of economic research at Indeed Hiring Lab told CNBC.
Bocconi University’s Andrea Fosfuri agrees.
“Salary transparency is likely to generate employee complaints and salary adjustment requests as pay differentials become more visible,” he told the MIT Sloan Review.
How to stay competitive
Sixty percent of organizations experienced labor shortages and trouble attracting and retaining talent in 2022. Meanwhile, hiring rates have outpaced quitting rates since November of 2020—meaning that workers aren’t simply quitting their jobs and leaving the workforce, they’re being hired at new organizations. Besides offering competitive base pay, nonprofit employers should consider the following practices:
Prioritize the benefits that employees care about
By nature, nonprofits operate on strict budgets. If your organization can’t offer salaries as competitive as your competition, it’s all the more important to prioritize the employer benefits that employees care most about.
In 2023, flexible work arrangements and hours, company-sponsored retirement plans, generous healthcare plans, paid family leave, and four-day work weeks top the list of benefits that workers care most about. In fact, offering flexible work arrangements may enable your organization to spend less on salaries: 75% of Americans say they would accept a lower salary if the job offered more flexible working hours.
Staying abreast of what benefits your competitors are offering and working to match them or provide equivalent options is another strategy that can make your hiring process more competitive. According to the Nonprofit Times survey:
- 60% of nonprofits offer flexible or hybrid work arrangements
- 1% allow employees to work in a hybrid work environment
- 6% offer subsidized training and professional development
- 6% offer employee assistance plans
- 4% offer free or subsidized parking
- 1% offer a healthcare Flexible Spending Account (FSA)
Consider removing transitional barriers (degree requirements)
If your organization is having trouble filling open roles, removing degree requirements from certain positions may open up the talent pool and increase your chances of landing a successful hire while staying within your organization’s budget.
As organizations battle to woo skilled workers and fill open roles, dropping degree requirements is a strategy that’s becoming gaining popularity. A January 2023 survey by Intelligent.com found that 53% of hiring managers say their company eliminated the bachelor’s degree requirement for certain roles in the past year. Sixty-four percent of those respondents did so in hopes of increasing the number of job applicants.
Of the organizations that dropped degree requirements, 33% eliminated them for senior-level roles, while 60% did so for entry-level roles.
“With two open job openings for every job seeker in this market, companies are at war for talent,” said Intelligent.com Chief Career Advisor Stacie Haller said. “We are hearing about layoffs in certain sectors, but in many others, companies are vying for the same candidates to fill open roles. The advent of the changing workplace with remote and hybrid options has opened up more opportunities for job seekers. A college degree requirement may eliminate many great candidates for entry into an organization.”
Save money where you can, and use those savings to bump up salaries
Being able to offer competitive salaries is more important now than ever before. At the same time, half of U.S. nonprofits saw a decrease in income in 2022—which means that to be able to afford to offer competitive base wages and benefits, organizations have to be particularly strategic about where money is going. After all— payroll and payroll liabilities make up the overwhelming majority of most organizations’ expenses.
Nearly 86% of 501(c)(3) nonprofits are overpaying on their State Unemployment Insurance taxes (SUTA) meaning that every month, they pay more in taxes than they ever cost the state in unemployment claims. Put another way, this means that 86% of charitable organizations are unwittingly funding the unemployment benefits of other organizations in their state, including for-profit businesses and corporations.
When nonprofit organizations become reimbursing employers, they skip paying into a government SUTA pool, avoid tax increases, and pay only for their own unemployment charges, allowing more financial control and a clearer picture of their yearly budgets.
501(c) Services helps nonprofit organizations leave the state unemployment tax system, stop paying unemployment taxes, and become reimbursing employers. Our programs have more than 1,500 participants and saves them an estimated $20 million on SUTA annually.
Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes nonprofit-specific content for 501c.com.
(Image by janskyclassic from Pixabay)
