It's time we got comfortable with a once-taboo subject: providing increased compensation and bonus for the employees of nonprofit organizations based on individual performance.

But to do it, we need to talk about KPIs.

KPI stands for Key Performance Indicators. KPIs drive the underlying business models of countless private sector companies but are too often nonexistent inside nonprofit organizations, and that needs to be fixed if we endeavor to have our nonprofits achieve their missions. I mean, there's a reason they are so ubiquitous in corporate America - it is because they work.

Different than outcome goals alone, KPIs break down overarching goals into metric segments that indicate one is on the pathway to success. For example, to ensure a program succeeds at helping 100 people be better educated, one could break that down into segments of program development, marketing and awareness-building, implementation, quality assessment, etc. Output (counting) and outcome (impact) metrics are both important to measure. They create accountability and buy-in, like how a recipe helps to create a finished meal.

KPIs are also important if you want to implement any sort of incentivization structure (or pay-for-performance). Without knowing how to measure success, it will be difficult to provide reward with compensation and bonus.

Wait, nonprofits are allowed to do that? Absolutely.

In fact, I'd argue that the absence of incentivization is likely keeping top talent from considering roles in your nonprofit organization, and may be the reason some of your best talent moves on.

Someone along the journey of the social good sector decided to severely limit nonprofits, creating separate rules that govern them that would never fly in the private sector. Imagine telling Bank of America that providing financial incentives for performance is somehow unethical. It is at the heart of capitalism that the best talent is not only well-compensated, but given a clear ladder to understand what they need to achieve to unlock it.

So why should nonprofits be any different?

It is already hard enough to attract the smartest, most capable people to the nonprofit sector. Compensation in general is much lower than in the private sector. The nonprofit business model is a messy one, with so many stakeholders (board members, donors, funders, volunteers, etc) influencing the staff member's work. And while successes in business are front page news, nonprofits are rarely celebrated in a similar fashion.

Getting creative with compensation is one area nonprofits can level the playing field (a bit).

We have helped nonprofit leaders at the board and Executive Director level create incentivization structures for their organizations that have become critical to getting the strongest applicants for open roles to consider making a move. Considering a CEO/Executive Director search? It is a near-requirement.

For development professionals, this becomes a bit trickier. As a card-carrying member of the Association of Fundraising Professionals, I ascribe to the principle that one's salary should not be directly tied to how much money is raised. This is considered unethical and for good reasons - it may create twisted incentivizes that promote the wrong thing. But funding raised can definitely be a part of a more multi-faceted set of KPIs that also rewards for other types of outputs and outcomes, e.g. achieving goals set for face-to-face cultivation, flawless execution of an event, number of new donors attracted.

I predict pay-for-performance to become a best practice of nonprofit human resources in the coming years, a recognition of the way technology has driven accountability and assessment for the sector more generally.

Want to learn more? Considering a search and needing help thinking through how best to create an incentivization model? Reach out and let's talk: search@nextstage-consulting.com

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