It’s late afternoon and I’m sitting on the porch of my sister’s slice of Northern Michigan heaven, working on my computer. My niece, a freshly minted Ivy League MBA, joins me and asks me if I’m done working. Almost, I respond, trying to finish a blog post I started before I left on vacation. But I confess that it no longer inspires me. “Write about bonuses,” she says. “How do you feel about bonuses?”
Having just been joined by my sister, an elementary school teacher in an urban public school district, and my brother-in-law, an international attorney, I let the question slide. In a funny turn of events, my niece had just found out that in the fellowship position she will start in September, working for a nonprofit that supports high-impact entrepreneurs, she is eligible for a 10% bonus. How much money that meant was up for grabs: 10% of the salary the nonprofit was paying or 10% of the total salary she will earn, paid half by the nonprofit and half by her MBA alma mater? To put this in perspective, 10% of half her salary would be just a tad more than what I net every two weeks!
So, what didn’t I say in response to her question? What do I think about bonuses in the nonprofit sector? They offend me, to be quite blunt. But they offend me wherever they are offered; they just are offensive and difficult in the nonprofit sector.
Let’s begin with the offensive piece. In teaching, as the semester starts to draw to a close, it is not uncommon for a student who suddenly realizes s/he has missed a test, not done a paper or chosen not to come to class on a regular basis to approach a professor and ask if s/he can do extra credit to try and bring up her/his grade. My response is always the same: you can’t do extra credit until you’ve done the work of the basic credit. The extra credit comes in doing what is expected of you, but in an extraordinary way. It is doing work that warrants an A instead of work that warrants a C. The choice is the student’s.
It should be the same for an employee. The employer should provide the expectations of work and employees should make the choice as to how to fulfill those expectations. Those who do A work should be rewarded. If the culture of an organization is to reward with money, fine; but not with a bonus. They should be rewarded with a pay raise in the coming year. If we truly want to thank an employee, support an ace staffer’s good work, we should provide a thank you that keeps on giving, rather than one that is over and done. A bonus doesn’t increase an employee’s base pay on which each subsequent salary determination is built; only a raise does that. A bonus doesn’t add to the calculations for retirement contributions; only a raise does that. A bonus doesn’t say we have faith in your future performance, and appreciate your past; only a raise does that.
By the same token, those who do less than A work should also be given a message of money. They should not receive raises or, worse, they should receive decreases in salary. They should be given a plan for improvement and/or they should be let go. While controversial, Jack Welch’s notion of forced ranking is not just a method for removing an organization’s worst performers; it is also a morale booster. Those extra-credit achievers, while liking their own rewards, are still annoyed, at best, by the continued employment of those who do not pull their weight or just do C work.
So, go ahead: if you are a money-based culture, reward. But do it properly, if you can. Which brings me to my second problem with bonuses in the nonprofit sector: finding the money to pay them. In the eight plus hours since my niece suggested the topic of bonuses, I’ve been playing with that donor ask, and I’ve not come up with a good one. We all know how hard it is to raise money for the basics of operations—rent, lights, heat, building repairs, etc; thus, we can pretty accurately predict how the ask for bonuses would go. If raised income isn’t going to supply the source for bonuses, that leaves earned income. Unfortunately, though, too few nonprofits have strong enough earned income streams.
Which brings me to my third and fourth problem with bonuses: they contribute to the great salary disparities so often seen in nonprofits and they can assuage a lot of guilt. Too often organizations limit the availability of bonuses to the upper tiers of the organization chart. Yet it is these very tiers that not only offer higher salaries relative to the other tiers but also salaries that tend to be more competitive in the market place. Bonuses only widen the compensation gap between the top and the rest of the organization and, in so doing, create morale and other problems.
For too many board members, bonuses are a panacea for poor salaries and guilt. Rather than give a few people a supplemental income boost once a year, organizations should be working to improve their compensation systems for everyone (while simultaneously not being afraid to weed out the under- and non-performers.) Why, if a nonprofit is willing to adopt the for-profit practice of bonuses, isn’t it first and foremost willing to adopt the for-profit practice of providing competitive, livable compensation? Before we give the extra credit, let’s give the basics. Got extra money? Put it there!