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Friend. The nonprofit sector is losing the war for talent and it is our fault. Every year a lot of eager professionals enter our sector, or sometimes they join as a second career. But they do it because they care about a cause and they want to make an impact. Yet a recent Give Butter report shows that our sector suffers from a 19% turnover rate. That's one in five people leaving every year. And a Mission Edge report found that 67% of nonprofit employees are currently looking for a new job. That means two out of three of your staff members are probably looking for a new job right now. Our organization's work is often emotionally hard, but the emotional difficulty of the work does not explain the stampede toward the door. Because so many people aren't just leaving for another organization, they're leaving for the for profit sector. And the explanation is much simpler and much harder for us to avoid. It all boils down to math. Welcome to the Successful Nonprofits Podcast. I'm Dolph Goldenberg and I am a consultant, coach and confidant for leaders at small and large organizations across the country. I bring three decades of leadership and consulting experience building, growing, leading, and yes, repairing organizations. Today, I want to speak with you about thriving wages in the nonprofit sector. And I don't bring up pay as a narrow HR topic or another operational headache because you probably don't have a full time finance team or a full time HR professional on staff. But for nonprofit chief executives like you, compensation falls under strategy, governance, funding, and of course, our organization's values. How we compensate people is a direct reflection of our values as leaders and our values for our organization. And frankly, it telegraphs our strategy to the world whenever we post a position and put the salary out there for the world to see. If we care about equity, inclusion, fairness, and helping people thrive, then our compensation model must reflect that. Otherwise, really what we're doing is we're asking people to work for less than a thriving wage and that makes our words ring hollow even when our intentions are good. So friend, in this episode I am going to share a clearer way to think about the talent market that your organization is actually competing in. I also want you to have some practical places where you can begin this conversation with your board chair, your board committees, and your staff, leadership and funders. This is not a quick fix episode. This is really about starting the conversation that I think every nonprofit chief executive needs to be having with the various constituencies that they serve. And when I say various constituencies, I mean board, staff, clients, funders, and others. I've already shared with you I think that this all boils down to math. And here's the core problem currently in our sector, unless someone wants to move into management, we just don't pay enough for an individual performer to stay with us. And that means that we don't pay enough to keep individual performers who are rock stars. Let me just do a quick level set. You know, an individual performer is someone who isn't managing people. Maybe they're a case manager, maybe they're a social worker. They're in a specific role, but they perform and evaluate it based on how they do in that specific role. And when I say that we're not paying enough to keep individual performers who are rock stars, I use the term rock star intentionally. Let's talk about Mick Jagger for a second. He's a rock star and he shows up and he sings the same set of songs 200 nights a year. And he's been doing it for days, decades. Here's the incredible thing, though. He still is having a blast doing it. When you see him on stage, he looks like he's having fun. Now, he isn't looking to be a manager of other singers. He's not looking to be the CEO of a record label. No, he's a rock star. He shows up, he does the gig, he goes home. He feels good about himself. Here's the other incredible thing. When we see him on stage, he is not counting the days until he retires. He's 82 years old, and at that ripe old age, Mick Jagger and his bandmates are working on a new album right now. That's the definition of a rock star. He's an individual contributor, loves what he does, wants to keep doing it for as long as people will pay him to do it. Now, those are the kind of case managers, client navigators, front desk staff, bookkeepers, social workers, accountants, communication professionals, fundraisers that we need in our sector. People who are great at their job, who aren't managers, who love doing it, earn enough money so they can stay for decades without either having to move into management or sacrificing their financial future. And that last part really matters because it's not enough for someone to love the mission. It's not enough for them to feel called to the work or even love the job or the people they work with if they look out into the future. And when I say the future, I mean 3, 6, 12 months, even 10 years into the future, and they don't see a world where they're going to be able to afford a decent place to live, transportation, food, Retirement savings and the ability to service those college loans that we've required so many people take out to meet our minimum qualifications, then if we don't pay that much, at some point, they're going to have to make a tough choice. When an amazing individual performer leaves our organization, when that great social worker or bookkeeper leaves, we lose much more than the person in that seat. You already know this, but I'm helping you make the argument within your own organization as well. We lose the institutional knowledge, the skill, and the relationships that person has. Those could be relationships with clients, donors, volunteers, community partners. It depends on what their role is, your organization. But there's something else that we as executive directors and managers lose. We lose momentum and time. Every time we have to fill a position, we take a hit on momentum. We're not able to move our organization forward as quickly, and we lose our time, which is an additional hit on momentum, because we have to take the time to recruit and onboard a new person, as well as the time to frankly fill the vacancy gap and reassured everyone who has stayed that it's all going to be okay. Too often when someone resigns, we shrug and we tell ourselves, hey, turnover. It's just part of the nonprofit world. And maybe, and I do this as well, I often say, hey, you know, someone leaving is an opportunity. And oftentimes we think of it as an opportunity to restructure or to do a better job hiring next time or whatever that might be. But if building our organizational structure is around a single vacant position, that's not really a strategy is it's a way of accepting a broken model. Because frankly, fixing it just feels too big. Here is one of the radical things that I have come to believe, and if you're multitasking right now, please come back because this is really important. I have come to realize that our competition for talent is, is not just other nonprofits. In fact, one of the mistakes that we make when we do salary surveys or when we pay someone else to do them is to look at what similar nonprofits are paying in our region or our metro area. And when we do that, oftentimes what we're looking at are other organizations that are dramatically underpaying their staff, that are not paying their team wages where they can truly thrive. And outside of work, here's a startling statistic. One in five nonprofit employees struggles to afford the basic necessities. That's one in five. Now, probably 40% maybe aren't struggling, but it's hard. They have to really carefully manage their budget. So that they can actually afford just the bare necessities of living. Here's what we so often fail to see as nonprofit chief executives, our staff have more options than we might think they do. A phenomenal case manager earning $55,000 a year could likely earn 75,000 to in a big market like New York, 135,000 annually. In a similar case manager role at a law firm, literally the work is transferable. They could walk out our door and get a salary increase anywhere from 20 to $80,000 a year. A social worker could get their clinical license and earn significantly more as part of a small private practice. And don't even get me started on accounting. I recently read a Robert Half study where they see unemployment in the bookkeeping and accounting field ranging between 1 and 2%. In fact, the market is so tight, as I've said before, a bookkeeper could probably be fired for almost anything but embezzlement and would have a higher paying job within the week. So that's the talent market we're in. In this talent market, neither an employee's passionate commitment to our mission nor a modest 2 or 3% cost of living increase is going to be enough to help us retain those high performing staff members. Certainly not when the rest of the economy is offering substantially more. One of the reasons I decided to talk about this today on the podcast is in New York City, a quiet tsunami is coming for the nonprofit sector. So the hotel workers union recently secured a 50% wage increase for hotel housekeeping members over the next eight years. And during that time period, their wages will gradually rise from just under $40 an hour. Let me repeat that. Their current wage is just under $40 an hour, about $83,000 a year, to more than $61 per hour, which is about $127,000 a year without any overtime. Now we can tell ourselves that's New York City. It's an expensive city. I'm not an expensive city like that. So we don those kind of wages and let me say, you might not need to pay $127,000. But let's also talk about the benefits that union housekeepers are getting. They get a pension fund, free health care both for themselves and their family members, 10 paid holidays, five paid bereavement days for every death in their family, 12 paid weeks of family leave, paid time off to vote, and more. So one of the questions I want us to ask ourselves is my nonprofit's benefit package that good? We need to take a long hard look at our benefits as well and that's true whether we're in New York City or we're in Kansas City. I also just want to take a step back and be really clear about what I'm saying right now and what I'm not saying. The point is not that hotel housekeepers are being paid too much. The point is that many nonprofit employees in our organizations are being paid too little. This is not about resentment of someone else making more. It's about understanding what the actual labor market is. And if you're leading a nonprofit in New York City, your employees are not just comparing your jobs to, to other nonprofit jobs. They're comparing them to jobs that might pay more, provide better benefits, require less emotional labor, and still allow them to build a stable life. Just not of the nonprofit sector. After reading about that hotel housekeeping contract, I went to some job boards to compare that compensation, the compensation that hotel housekeepers are currently getting and will be getting in eight years. I wanted to compare that to what nonprofit employers in New York City are paying. So these are real jobs in the nonprofit sector in the city. I found a clinical case manager position at a homeless service organization that starts at just under $56,000 a year. It required a four year degree, by the way, for which those candidates are probably making student loan payments. And whoever takes that job as a clinical case manager could leave today. And this is before the wage increases for hotel housekeepers and make $25,000 more as a union housekeeper at a New York City hotel. And here's where that math becomes even more striking. If the case manager's Pay increases by 50% over the same eight year period as that housekeeping contract, they will still be making $42,000 less than the full time housekeeper down the street in 2034. That pay disparity continues to widen if we are not doing more than a 50% increase in new York City. A couple other positions I just want to tell you about. I'm not going to go through and do all the math like I just did on the clinical case manager. I also found a compliance attorney position posted at 80,000 to $90,000 a year. This person maintains a caseload of 200 guardianship filings. And the position requires two college degrees, right? An undergraduate degree and a law degree. By the way, did I mention that college debt and all those payments? Well, after we take out what the person probably is paying in school debt, they're making less than a hotel housekeeper without that college debt. And then I found a bilingual case manager position in Manhattan that offered a meager $45,000 annual salary. And that, my friend, that was at the top of the postage range. I wanted to say it started at like, 42,000. And they said they would only pay the top of the range if experience deemed the person worthy of that. Here's the other interesting thing. When I read those three job descriptions, each one of them touted their strong belief in equity and inclusion. I'm not going to read you all of the quotes from those three job descriptions, but I am going to read two. The first one, we value diverse experiences, including with regard to educational background and justice system, contact and depend on a diverse staff to carry out our mission. This is the second one. We are committed to building an inclusive workplace community grounded in respect for differences. And by the way, I'm not reading the third one because it's like three paragraphs long. After I read the job description and I looked at the salary, all of those statements of equity and inclusion, they were just hollow. I'd be willing to bet that the person who wrote them genuinely believes it and genuinely wants their organization to have that commitment, but they're not paying like it. And that. That's called lip service. Now, if at this point you have a huge sigh of relief and you're saying, ah, Dolph, thankfully I don't run a nonprofit in New York City, well, I got some bad news for you. This is just not a New York, San Francisco, Los Angeles thing. If you're running an organization outside of a big city, you're facing similar pressures right now. So I looked at the exact numbers in Atlanta, Cincinnati, Connecticut, Boulder, Spokane, and some other cities. I just pulled a few examples, but these are representative, fair examples. There's a homeless housing case manager position in Atlanta that pays $52,000 a year. There's also a bilingual care position with a posted range of 52,000 to 62,000 in Connecticut, and a development coordinator position in Cincinnati that pays about $49,000 a year. Now, that last one, the development and communications coordinator position that paid $49,000 a year, that really got my attention because when I was a development coordinator 30 years ago, so in 1996, I earned $44,000 a year. I popped that into an inflation calculator, and today that's like earning $93,000 a year in Cincinnati, that person's making less than 50. So when I talk about thriving pay, I'm not just talking about a recent problem that was created by a few years of inflation. This is decades of nonprofit wages failing to keep up by 1 or 2% a year. And when you multiply that by 30 or 40 years, it becomes stark and it also becomes really dark for the people who actually have to try to live on those wages. If you recall earlier in the episode I said other nonprofits aren't our competition, and in many cases the service sector offers very competitive salaries outside of the big cities with a more flexible schedule and better long term prospects to actually move into management without another expensive degree that will require more college debt. I want to pause here because this is where some nonprofit leaders naturally get a little defensive. And admittedly when I've been an executive director, this might be where I got a little defensive too. You might be thinking, dolph, I agree with you. I agree with you about all of this. But my organization doesn't have the money or my board already thinks salaries are too high. They recall times when they were young poor people in their 20s and life was hard as well. And I wouldn't blame you if you thought, hey, we're barely meeting our budget goals now and I just can't increase pay. And friend, I get it. For most nonprofits, our staff costs represent 50 to 75% of our budget and for many small and mid sized organizations, the CEO is already holding too much. We're responsible for strategy, fundraising, board management, staff morale, cash flow, program quality, and all the administrative minutiae that no one else is there to do. So no, I'm not going to pretend this is easy, but I also do not think we can pretend that the current model is sustainable, because it's not. It's time for us to take a quick break and when we come back, I want to talk about Costco and what it teaches us in the nonprofit sector about paying for talent. I also just want to give you some thoughts on how you can start to have that thriving wage conversation within your own nonprofit. Welcome back friend. Before the break, I had mentioned that we're going to quickly talk about Costco and what we as nonprofit leaders can learn from Costco, as well as some ways to start the thriving wage conversation within our own organization. But let's start just by talking about Costco for a moment. Costco starting pay outside of big cities like New York and Los Angeles is $20 per. That's about $41,600 a year. They also provide a $1 raise for every six months that someone has worked and an additional $1 across the board salary increase is scheduled for March of next year. That means that an employee who starts at Costco today could be earning over $47,000 in a year with just a little overtime and some additional Sunday pay. Because Costco pays employees time and a half when they work on a Sunday, that theoretical employee actually earns more than the homeless case manager in Atlanta and the development and communications coordinator in Cincinnati. And here's the thing. Costco also rewards longevity. Non management. Full time employees receive retention bonuses based on their store's profit and can earn up to $31.20 per hour after just a few years. That is before their twice a year bonus. Based on how their store does so without overtime, without a Sunday pay differential, and without their bonus after several years, a Costco employee who's not in management could be earning $70,000 a year. When you add their bonus and overtime and Sunday differential pay, they could be making $85,000 or $95,000 a year without the headache of being a manager, without the responsibility of human lives on the line every single day. Now, if you've ever been to a Costco, you know they have some amazing rock stars working their floor spills. Get cleaned up quickly. Everything always looks neat and tidy. The line that looks super long when you walk up to it is processed in minutes. And on your way out the door when they swipe your receipt, they always smile at you and tell you to have a good day and you walk out of the Costco warehouse feeling good. And often if you're like me, spending a little bit more than you thought you would. Here's why. Costco pays for, expects and gets top talent. If they didn't pay for it but expected it, they wouldn't get the top talent. They just wouldn't. And there's a lesson for us in the nonprofit sector here. Costco. They're not hoping that great employees just appear. They're not relying on vague promises of goodwill or equity or fairness or even acting surprised that people want to get paid enough to be able to stay for years. And by the way, Costco's retention rate after one year is 94%. And that's because they've built a model that rewards strong performance and longevity. And this commitment to longevity, it starts at recruitment. It's not easy to get a job at Costco, but their amazing pay and benefits result in the best possible candidates willing to apply and compete to be a part of the Costco team. Now, I understand as nonprofits, we're not Costco. We don't have the same revenue model. We often rely on philanthropy or government contracts or foundation grants. We certainly don't have that scale or margins or operating environments. But I'll share with you, here's what we do have some benefit and some advantage over Costco. First of all, everything Costco does is taxed. You know, as tax exempt organizations, we don't have to pay income tax. What we save in income tax, we could be investing into our staff and our employees. Additionally, Costco's margins are really thin. Costco's proud that they will not mark anything up more than 14% above what they paid for it. So just think about that. They're able to pay for all of their staff, those high wages, those good benefits with a 14% markup. So we should be paying attention to that underlying strategy if we want to recruit excellent people and have them stay. Our compensation model has to make staying a viable life choice. Hopefully by this point, I've won you over. You're like, okay, Dolph, I get it. We're losing the battle for great talent and we're losing it to places like Costco, other retail establishments, hospitality industry, etc. Now, hopefully you're also saying, what can we do about it? As chief executives, we have the unique ability to chart a bold course for our organization. If we were the cfo, the Chief Program officer, or the Chief Development Officer, this would be harder. But our title is executive Director or Chief Executive. We can make this a reality. We could follow the lead of New York City hotels and chart a course to increase wages by 50% over eight years. And by the way, that's just a 5.2% increase compounded annually. Remember when I said that wage gap is just because we've been behind only by a percentage point or two for decades now. See, as organizations, we keep giving out 3% raises, when in reality we should have been doing 5 or 6% raises. Though keep in mind again my example then of the New York City case manager, because we now have that huge wage gap and disparity, a pay increase of 50% over the next eight years, they're still going to be earning $42,000 less than a union hotel housekeeper. So some organizations, they might need Even consider a 75% wage increase over that same period, while also following Costco's lead with strong benefits and twice a year bonuses for tenured employees. And friend, I know that sounds bold, but there's a song I really like and it says something like, if our goals don't scare us, they're not big enough. Because let's face it, the current model, it's not working. And small adjustments around the edges, let's do 5% this year and see what we can do next year. That's not going to solve the problem. When we try to balance our budget year after year, the easiest place to take that 1 or 2% is from pay increases. That's where we get ourselves in trouble. Our sector and our organizations. We are motivated by mission, not money. And this argument is twofold. First, the most important caretakers of our mission are our staff, oftentimes some of our lowest paid staff, and we shouldn't go cheap on staffing. Second, in one way or another, our missions are about helping people thrive. And we cannot achieve our mission when we do not pay our own staff enough to truly thrive. So as leaders, we need to ensure that everyone on our team earns at least enough to afford decent housing, transportation, food, retirement savings, the ability to service their college loans, and the ability to live the life that we all want to live. If our compensation model does not account for these critical expenses, our message to talented applicants as well as our best performers is very clear. Hey, you can only work here if someone else helps pay your bills. And that's not the message most of us, as nonprofit leaders want to send. I realize, friend, that dramatically increasing pay scales over the next eight years is scary again. Staff costs for most of us represent half to 75% of our budget. And achieving a bold goal like this requires significant revenue growth and a ruthless, almost scary eye toward increasing organizational efficiency. And this is where we, as CEOs and executive directors need to be able to hold two truths at once. The first truth is that the current model is not sustainable. The truth, on our other hand, is that we cannot simply announce a thriving wage goal without the careful work and relationship building necessary to implement the plan. So there is not a world where I would suggest you walk into your next staff meeting and say, good news, we are going to increase everyone's wages by 75% over the next eight years. And then leave yourself, your board, and your finance committee to figure it out later. That would be irresponsible and it would undermine trust if we can't deliver. But the fact that we can't announce that tomorrow doesn't mean that we can avoid the important conversation today. And that conversation starts with your board chair, not the full board at first, not your leadership or public comment. You and your board chair need to begin by asking whether the current compensation model is sustainable for staff and reflects your value. Let me be clear. I didn't say is competitive or is sustainable for you as an organization. Is your current compensation model Sustainable for staff and does it reflect your values? And if the answer to either of those is no, the two of you ask yourselves what it would take to build something better over time. From there, the conversation can expand to the finance and executive committees, eventually including other board committees, your staff leadership team, and of course, if you've got some development people, even one them as well. I also recognize that you might be an executive director who does not have a lot of administrative support. Your bench might not be very deep. You might only have a part time bookkeeper. Your HR team might be a payroll platform and an employment attorney you call when things get a little complicated and sticky. So I get that this work has to be right sized to your organization. And one practical way to begin with your board chair and maybe eventually with your executive committee and finance committee is to use a book like the Good Job Strategy by Zeynep Tan. And how I would use that book is I'd form like a book discussion group that's composed of the executive committee, the finance committee, and maybe when I'm ready to bring them into this, the leadership team. And that kind of discussion can help overcome initial leadership skepticism and, and resistance because the book illustrates models where this works and demonstrates the tangible benefits for your organization. Some board members are going to hear higher wages and immediately think higher expenses. And they're not wrong. Higher wages does normally need more money in order to make that happen. That reaction is understandable. It's also incomplete. We need to be asking ourselves, what does turnover cost? What does a vacant position cost us? What happens when funder or donor or client relationships are disrupted? What happens when the bookkeeper leaves and the CEO loses some of their deep thinking strategic time while they're working to both fill that position and also literally, maybe even do that position. Now, those questions are not going to help solve the budget gap, but they will create a more honest conversation about the full cost of our current model. You might be thinking, Dal, this all sounds like pie in the sky consultant stuff. When was the last time you actually did anything like this? Well, a few years ago, I walked into an interim engagement where the wages were so low we literally could not keep the staff necessary to meet the terms of our service contracts. Let me repeat that. We paid so little we could not keep positions filled. And our government funder was talking to us like, hey, you got a problem here because we can't fund you if you can't do the work. I had to go back to our grantor and I had to make a case for higher wages. Our wages were competitive, but we needed them to be higher. We needed them to be a thriving, livable wage. And so I went back and I made the case for higher wages along with a very small reduction in staff, really staff positions, because we had so many vacant positions that we didn't have to lay anyone off, we just had to eliminate some positions. And with the funder's support, we were able to deliver on an average 25% wage increase for staff that year. We were clear with our team that that was a down payment on continuing to close the pay gap. So I know it can be done. It's hard. It means we're going to have to have difficult conversations in our planning phase. We need to start having those long term conversations with our funders and our donors, the individuals and entities that we are going to need the financial support from in order to increase wages. The vast majority of our funders are as committed to equity and inclusion as we are. And also, if they have staff, they might be facing similar wage and compensation pressures themselves at this point. So it might be a welcome conversation on both sides of the table. And you just need to invite them to join you on a thriving wages journey. And journey is part of the language that matters, because this is not a one year grant request or a one time salary adjustment. This is a multi year strategy. Funders and donors need to understand that thriving wages are critically important to our mission. Now, this does not mean every funder is going to say yes. Some, frankly, are going to tell you no. Some may tell you they support equity, but continue funding in ways that make equitable pay harder to achieve. But the conversation with funders still matters, because if we as nonprofit executive directors do not name the issue clearly to our funders, they can continue to pretend that the mission matters more than what we pay people. And we know that's not true. At some point before your plans are finalized, you're going to want to get feedback from all staff. And I would ask them a very specific question. How could we get 25% more efficient and effective over eight years so that we can pay you 50% more by the end of that period? Including all staff members in the final stages of our planning will also underscore the fact that everybody needs to support the fundraising efforts and operational efficiency initiatives that will make this possible. This doesn't mean that everyone becomes a fundraiser in some awkward or coercive way, but it does mean that everyone understands the organization's dependence on philanthropy and does their part in their own way to be able to support our work with donors and foundations. And let's also face it, our staff are the perfect people for us to have conversations where we ask where are their inefficiencies? They know which processes waste time or duplicate efforts. They know which reports really are not useful at all, which meetings drain their energy and which systems make it harder for them to do their work. As we work on this and as we roll it out, we also just have to be clear that this goes well beyond HR components. As the Executive Director, we've got to hold the larger frame here. This is not just about moving one salary range from $45,000 to $52,000. It is about ensuring our values show up in our budget so that we can retain those rock stars who are great at what they do. Friend I strongly believe that how we compensate people is a direct reflection of our values as leaders and telegraphs our strategy to the world. As chief executives, we are uniquely positioned to demonstrate our values of equity, inclusion and fairness. This is why compensation and competition for talent have been a strategic conversation. In nearly every coaching, engagement and strategic plan I have worked on in this decade, nonprofit CEOs are seeing positions stay open longer with applicants asking harder questions about compensation. And we've also seen our staff leave for work that may be less mission aligned but more financially sustainable. I know that this issue can't be solved between Tuesday afternoon meetings. I know that for small and mid sized nonprofits, even modest compensation increases can be a heavy lift. But the alternative is pretending that a broken model will somehow repair itself. And it will not. So if you're interested in making a change at your organization, I want to leave you with one step you can take to move in this direction. Share your pay scales and livable wage data with your board chair and in a one on one meeting with your chair, ask or what would it take for everyone on our team to earn enough to truly thrive within eight years? Once you've talked about that in that same conversation, ask another question. What would need a change in our revenue, our operations, our staffing model and our funder conversations to make that possible? That one step. That's where this work starts. If your organization is looking for a mission centric participatory strategic planning process, or if you are interested in exploring this as part of a coaching relationship, please reach out. You can find me@dolphuccessfulnonprofits.com and if this episode hit a nerve, send it to your board chair. That's a great way to start the conversation when you send the episode to your board chair. Make sure you also tell them that you're going to be sending your pay scales and some livable wage data to them so you can have more of a conversation in your next one on one friend. Thank you for inviting me into your week. I hope that you have gained some insight to help you and your nonprofit thrive. And of course the lawyers make me say it. I'm not an accountant nor an attorney, and neither I nor the consulting practice provide tax, legal or accounting advice this podcast. It's for informational purposes only and should not be relied on for tax, legal or accounting advice. Please, for all that you hold dear and sacred, if that is the type of counsel you need, find a licensed, qualified professional in your area and get the counsel you need.