The Challenge of Inadequate Wage Increases and its Impact on Charitable Organizations
With inflation at historically high levels, nonprofit workers in the United States (U.S.) are demanding wage increases to help mitigate unprecedented increases in the cost of living. Fueled by the Great Resignation, employees across industries now often have the upper hand when it comes to negotiating their wages.
Salary and wage increases at U.S. organizations have not kept pace with the rising prices of inflation, and recent trends suggest that in many cases there is financial gain to be had from leaving workplaces that can’t keep up. To put a fine point on it: employers who aren’t able to provide compensation increases that account for inflation risk losing their employees to those who can.
It’s a particularly confounding challenge for charitable organizations. Even before implementing cost-of-living adjustments (COLA) for staff members, many nonprofits have budgets that are already stretched thin by the kaleidoscope of challenges ushered in by the pandemic. Among these are sharp increases in the cost of operational materials and supplies, decreased donations, and increased demand for charitable services fueled by nationwide financial insecurity.
Unfortunately, the people who work for charitable organizations are far-from immune to the falling power of the dollar. Among nonprofit employees, public pressure to increase wages is growing.
In March 2022, hundreds of nonprofit workers gathered in New York City to demand that a minimum wage of $21 per hour and a 6% cost of living adjustment be written into the city’s budget for nonprofit workers. Nonprofit workers in San Francisco have organized similar demonstrations.
In New York City, human-service workers earn only 70% of what their government-agency counterparts are paid. Unlike city workers who have cost-of-living adjustments included in their contracts, nonprofit workers are not so fortunate.
“The irony of assisting people with experiencing homelessness and financial instability when I am on the brink of the same instabilities is extremely frustrating,” Chan Henry, a case manager at nonprofit homeless outreach group Urban Pathways told Gothamist.
What’s at stake when it comes to wage compensation?
Between a crowded labor market and 40-year-high inflation rates, a 3% salary increase (the average amount given to workers in recent years) may not be enough to retain in-demand workers in 2022. In fact, American employees cited low pay as one of the top reasons why they quit their jobs in 2021, according to a February 2022 survey by Pew Research Center.
Indeed, data show that switching jobs can help employees stay ahead of the inflation curve. Data analysis from Pew found that the average worker who changed jobs between April 2021 and March 2022 received a raise that outpaced inflation by a wide margin of nearly 10% or more. On the other hand, the average worker who stayed at their place of work between spring 2021-2022 experienced a loss in wages once inflation is factored in.
How are employers responding?
Predictably, human resources (HR) professionals are concerned. A survey from the Society for Human Resource Management (SHRM) found that the effects of rising costs of living on employee livelihood was the greatest inflation-related concern among surveyed HR professionals.
Among the 70% of HR respondents who said their organization plans to raise employee pay, 63% reported that inflation was a consideration.
“Employers recognize that inflation can have a major impact on the well-being of their team,” said John C. Taylor, President and Chief Executive Officer of SHRM. “Many employers are re-examining their strategy when it comes to both pay and the overall employee experience. While many are still unsure about what will happen with pay, over half of those surveyed who’ve made a decision state that inflation will be factored into employee annual pay raises.”
SHRM’s survey isn’t the only study suggesting that organizations in the U.S. are reckoning with the need for more competitive wage increases. A recent survey from compensation software and data company Payscale found that exactly one-half of U.S. organizations expect to increase their salary budgets going into 2023.
Between 2021 and 2022, Payscale found that nonprofit employers on average allocated the following wage increases:
- Non-exempt employees: 3.3% increase in wages
- Exempt (non-manager) employees: 3.2% increase in wages
- Managers: 3.3% increase in wages
- Officers and executives: 3.0% increase
In 2023 however, yearly raises are projected to increase. According to Payscale’s findings, nonprofit employers are anticipating the following:
- Nonexempt employees: 4.2% increase in wages
- Exempt (non-manager) employees: 4.1% increase in wages
- Managers: 4.0% increase in wages
- Officers and executives: 3.6% increase in wages
Of the organizations who plan on bumping up their salary budgets for 2023, 85% attribute the decision to raise pay to heightened competition for labor, or labor supply shortages.
Case Study: How the Center for Progressive Reform increased wages
Nonprofits generally operate on slim margins, and there’s no one-size-fits-all solution for finding the cash to fund inflation-era compensation increases.
Some organizations may have endowments or other funding sources that can be utilized to increase employee pay. Others, particularly public-sector organizations, may need to cut costs, raise money from private donors, or persuade state legislators to approve budget or tax increases in order to improve their operating margins.
Minor Sinclair, the Executive Director of the nonprofit think tank The Center for Progressive Reform (CPR), penned an article for the Chronicle of Philanthropy sharing how his organization strategically set out to address salary erosion. After recognizing that employees were struggling financially and leaving CPR for institutions with higher salaries, the organization formulated a multi-tier plan to bulk-up employee compensation and help staff offset the financial harms of inflation.
To do so, the board established a “contingency fund” to augment salaries in order to help mitigate the impact of inflation. Staff members received a $1,000 payment from the fund in spring 2022, which CPR plans to renew in the fall. Additionally, CPR upgraded employees’ benefits packages, including providing a “modest allowance” to help cover utility and internet costs for people working from home. Employees also received an extra week of vacation to be taken at the end of the year, and short and long-term disability-pay plans were made available to staff.
Importantly, CPR also partnered with a third-party group called “Living Wage for US,” which certifies organizations that commit to paying living wages.
In doing so, CPR publicly committed to paying staff a living wage, allowing the third-party group to conduct an individual assessment of each staff member’s living-wage costs alongside their salary-and-benefits packages.
“Certification by a third-party is much more credible than any claim that we could make ourselves,” Sinclair wrote. “Our staff is proud that we are a living wage employer, and the designation has already helped attract new people to our organization. Employees also know that if Living Wage for US finds that their compensation does not exceed their living-wage costs, they can press for a salary increase or ask Living Wage for US to de-certify us.”
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 weekly nonprofit-specific content for 501c.com.