Total Compensation Considerations for Nonprofits

Total Compensation

Considerations for Nonprofits

Presented by Zack Pace, SVP, CBIZ Benefits Consulting Email: [email protected] | Phone: (443) 259-3240

linkedin.com/in/zackpace

Priya Kapila, Compensation Consultant CBIZ Human Capital Services

Email: [email protected] | Phone: (314) 692-2249 linkedin.com/in/priyakapila

Historic Total Compensation Outlook,

Nonprofits vs. For Profits:

NONPROFIT STAFF:

Cash compensation is lower, while benefits

compensation is higher

NONPROFIT EXECUTIVES:

Compensation and benefits are lower

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What’s Changing?

Nonprofits are increasingly competing with for profits

for talent

The delta between cash compensation for similarly

situated employees at nonprofits and for profits has

narrowed

The benefits compensation delta is also narrowing,

spurred on by competition and the Affordable Care Act

3

Increased Employee Mobility

Employees and executives are moving between

nonprofits and for profits at an increasing rate

– Economic Influences

• Staff: non-profits became an alternative when for profits weren’t hiring

• Execs: non-profits have started “thinking like a business”

– Generational Influences

• Staff: younger workers are inherently more transient and desire to do

meaningful work – differs from prior generations

• Execs: baby boomers who’ve fared well are looking to give back or transition to

a valued cause

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This development puts upward pressure on

nonprofit wages

Nonprofit Cash Compensation Trends

Average nonprofit

salaries remain below

for profit salaries

among staff positions

There are also

notable pay

differences

depending on

nonprofit organization

type

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Accountant

Median DC Metro Salary

$63,300

$61,100

$56,700

$54,600

$51,300

Source: ASAE Association Compensation & Benefits Survey, PRM Consulting Group Management Compensation

Report for Not-For-Profit Organizations, Total Compensation Not For Profit Compensation Survey

Associations

Foundations

Health Care

Education

Social Services

Nonprofit Cash Compensation Trends

Today, relevant labor markets should be defined more

broadly than in the past

Key considerations when determining labor markets:

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– Location o Local

o Regional

o National

– Industry o NTEE Code

o Broad Spectrum of Employers

– Size

o Revenue/Operating Budget

o Number of Employees

Nonprofit Executive Compensation Trends

IRS Compliance

– Effective in 1996, rules finalized in 2002 and clarified in 2008

under IRS regulations starting at 26 CFR 53.4958

– Non-profit organizations must pay “Fair Market Value” to

disqualified persons

– Fair market value is the price agreed to by a willing buyer and

a willing seller, assuming neither is under any compulsion to

act

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Factors Decreasing

Compensation

Factors Increasing

Compensation

• Regulatory scrutiny

(federal and state)

• Public outcry

• For-profit executives moving

into tax-exempt world

• Transparency ("me too"

effect)

• Inclusion of for profit data in

comparisons


Base salary convergence

Nonprofit total compensation continues to lag

– Annual incentives are increasingly prevalent (>50%), but often

have significantly smaller payouts

– Deferred compensation and long-term incentive programs remain

less common and yield smaller payouts

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CEO/Executive Director – Average Annual Incentive/Bonus

Nonprofits For Profits

10.0% 40.0%

Source: Economic Research Institute, WorldatWork Incentive Pay Practices Survey:

Non-Profit/Government Organizations

Benefit Benchmarks, 50 or more employees

Average Monthly Health Plan Premiums

For profit,

incorporated Nonprofit Difference

Single $ 448 $ 530 18%

Family $ 1,325 $ 1,491 13%

Average Monthly Employee Contributions

For profit,


Single $ 101 $ 95 -6%

Family $ 361 $ 404 12%

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Source: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost

Trends, 2013 Medical Expenditure Panel Survey – Insurance Component

Benefit Benchmarks, 50 or more employees

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Source: Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends,

2013 Medical Expenditure Panel Survey – Insurance Component

Average Deductibles

(of Plans Offering Deductibles)

For profit,


Single $ 1,168 $ 1,082 -7%

Family $ 2,326 $ 1,969 -15%

High Deductible Health Plans (HDHPs)

27% of employers and 22% of nonprofits offer

HDHPs1, 2

20% of covered workers and 11% of nonprofits

workers are enrolled in a HDHP1, 3

While DC area nonprofit HDHP adoption growth has

lagged, cost increases and the ACA impact is

increasing demand

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1. Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2014

2. Grant Thornton Nonprofit Compensation Survey

3. 2014 ERI Benefits in Nonprofit Organizations Survey

HDHP Introduction Best Practices

Keep your Traditional Plan

Use a Defined Contribution approach, AKA a “Buy-up”

Example:

In lieu of making employer contributions to a Health

Savings Account, increase the Defined Contribution

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Employer Contribution

HDHP Single $450

HDHP Family $1,500

Platinum Single $450

Platinum Family $1,500

Affordable Care Act Impact

Eligibility provisions improve at for profits

– For profits lowered eligibility waiting period to First of the

Month Following 60 days in 2014

– Most for profits will reduce hours requirement down to 30

hours in 2015

Employee contributions for single coverage will fall at

certain for profits to meet ACA affordability

requirements. 9.5% of FPL Safe Harbor is about $92

per month, for example.

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Retirement Benefits 86% of for profits & 90% of nonprofit organizations offer a defined

contribution retirement plan

19% of for profits & 10% of nonprofits provide a defined benefit

plan. Many are frozen.

The average 401(k) match remains 50% to 6%

On average, nonprofit employers contribute 4% of base salary to

retirement plans

Nonprofits are more likely than for profits to make a nonelective

contribution

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Sources: PLANSPONSOR 2014 Industry Reports, PRM Consulting Group Management Compensation

Report for Not-For-Profit Organizations, Total Compensation Not For Profit Compensation Survey

Executive Benefits

Deferred compensation plans have become increasingly

common for nonprofit executives – More than half of nonprofit organizations provide a qualified plan

– Approximately 10% provide a non-qualified plan

Qualified deferred compensation plans allow for

enhanced retirement contributions and the same limits as

those of 401(k) and 403(b) plans

A non-qualified deferred compensation plan provides

greater flexibility for deferred amounts, but requires

“substantial risk of forfeiture” for deferred taxation

16 Source: ASAE Association Compensation & Benefits Survey, Grant Thornton Nonprofit Compensation Survey

Executive Benefits

Other Considerations

– Life & Long Term Disability Insurance

– Charitable Gift Annuity

– Severance

– Post-retirement Consulting

– Perquisites

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Plan of Action

1. Benchmark your benefit programs

2. Benchmark your salary levels and executive pay

3. Evaluate how much your organization is competing

against for profits for talent

4. Make any prudent adjustments

5. Develop a 3-year evergreen plan

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Total Compensation Considerations for Nonprofits