Organizations across the globe are keen on making the best out of their day-to-day operations to remain competitive, profitable, and sustainable. This proposition not only applies to for-profit but not-for-profit organizations. One way that organizations achieve the said objectives is by having the right executives at the helm of the organizational structure. Efficient and right executives ensure that an organization achieves its set organizational objectives. In as much as executives play such a pivotal role, an organization must consider the remuneration package it is willing to offer its executives. As would be the case, most if not all business executives are attracted to organizations that promise a remuneration package worth of their qualifications and contribution. For this reason, not-for-profit organizations are forced to think on the financial implication of offering hefty packages to their executives in as much as they do not have a dependable source of income (Johnson, 2011). In spite of the fact that not-for-profit organizations do not have steady cash flows, they must compete with for-profit organizations.
Advantages for a not-for-profit organization that pays its executives similarly to a for-profit business ?
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A not-for-profit organization that pays its executives salaries that are comparable to for-profit business are likely to enjoy some advantages in the area of business growth and profitability. technically remuneration is one of the greatest motivating factors there is in the business world and executive who is highly paid are likely to be motivated (King and Lewis, 2017). Following this motivation, the executives are in a better position to come up with effective strategies to ensure that not-for-profit organizations are competitive. The greatest thing they can achieve for such an organization is to ensure the organization's cause is advanced. Once the cause has been advanced, the organization is much more likely to get the attention of reliable donors to support the cause further. Moreover, a not-for-profit organization that pays its executives well is not likely to deal with high turnover which impacts its organizational objectives. A case in point is Red Cross an international not-for-profit organization with a handsome package of $500,000 for its CEO Gail McGovern. This salary is in the same and even higher range of for-profit organizations as most of their salaries range from $172,000 to $194,000 (Atchison, 2018). The high salary that Gail receives at Red Cross is definitely the reason this humanitarian organization has managed to deal with humanitarian crises around the world.
Disadvantages of expecting executives to work for less in a not-for-profit than they would in a comparable position in a for-profit corporation
Not-for-profit organizations are not assured of funding as they depend on donations to run their operations including the executive salaries. Most of these organizations may find themselves paying their executives lower salaries as compared to similar positions in for-profit organizations. In this case, not-for-profit organizations that pay their executives way less salary as compared to for-profit organizations are likely to face several disadvantages. For one such organization are likely to face a high turnover in executives who will keep on seeking for better remuneration packages elsewhere (Bur, 2017). Additionally, it is likely that poorly paid executives would be demotivated meaning that they would not advance the organizations cause. In this case, such executives would not be willing to commit their time and energy in seeking more financial resources to support the organization’s cause. Moreover, executives who get less salary as compared to their peers in the for-profit organizations will most likely divert the funds for their personal expenses. What this means is that the organization’s cause would be undermined which in turn affects the organization's sustainability. At times, the organization may be forced to hire inexperienced executives just for the sake of filling the open position. Doing this then means that the particular organization will not be able to achieve its mission. In this case, one would assume that a not-for-profit organization needs to convince their executives to focus on the purpose as opposed to the salary in order to remain competitive.
References
Achison, A. (2018). Assessing Nonprofit CEO Compensation: Does the Media Provide a Fair Perspective? (Undergraduate Honors Theses). University of Arkansas, Arkansas, USA.
Bur, M. (2017, March 24). Why the high employee-turnover rate? NonProfitPro. Retrieved on 15 June 2019 from https://www.nonprofitpro.com/article/43895/
Johnson, C. E. (2011). Nonprofit executive compensation: How much is too much? Organizational Ethics: A Practical Approach (2 nd ed) pp. 12-14. Los Angeles: Sage Publications Inc.
King, C., & Lewis, G. B. (2017). Nonprofit pay in a competitive market: Wage penalty or premium? Nonprofit and Voluntary Sector Quarterly , 46(5):1073-1091.
