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Compensation Issues in Nonprofit Mergers

Compensation theory is one of the most intensely studied topics in management. To answer any one compensation question you must understand the answers to a range of other questions: Why do people work? What do they work for? How much is enough? What are we paying people to do or provide? What are the baselines and comparables internal to the organization and outside of the organization? What is the emotional 'salary' of work worth? What are the intrinsic rewards? What are the extrinsic rewards?

Compensation management requires the blending of hard, objective data with subjective perception. When it comes to strategic restructuring, managing compensation is even more complex because you are usually trying to blend two less-than-complete systems into one full, comprehensive and effective compensation system.

Some of the specific challenges faced by merging organizations are:

• Merging two or more approaches to compensation
• Merging different pay practices and programs
• The need to create a common language (job titles and compensation strategies)
• Ensuring employee retention
• Easing transitions and uncertainties
• Communicating with the workforce

When considering compensation issues in a merger situation, it is important to appreciate and understand the following factors:

Compensation Policy: How and for what do you compensate staff? What are the variables you consider when you set compensation? How does one make more money in this organization?

Internal Equity: Are positions in the merged organization compensated in relationship to each other? Certain criteria establish internal equity. Among those criteria are education, responsibility, consequence of error, and impact on mission.

External Equity: Are positions paid competitively when compared to other similar organizations in the nonprofit sector in the same geographic area? Comparables would include organizations similar in budget size as well as overall function.

Affordability: Can the organization afford the compensation offered, or it is being irresponsible by either overpaying or underpaying positions? (There is a cost to recruitment and replacement.)

Legality: All compensation must keep within the bounds of local, state and federal law.

Demographic Issues: The compensation strategy needs to take into account changing demographics and economics.

Employee Communications: Employees talk to each other, especially in a merger situation. This is critical, because often it is not what you make, but what you believe you make that defines your understanding of fair and equitable compensation and your level of satisfaction.

In any merger situation it is important to understand the perceptions and concerns of the employees who will be affected. Paul Stearns, Director of Compensation at Excite@Home, deals extensively with merger compensation issues. He reports that facilitated focus groups held during merger processes involving his organization brought to light the following employee perceptions:

These findings led Excite@Home to focus on the following key issues:

Job titles - matching the title with the impact of the position on the organization

Career development - helping people stay, and helping people leave

Recognition and bonuses - 'spot' pay, long-term pay, and stay pay

Acknowledging value - to get commitment from employees

Issues around employee satisfaction and retention are put on the table during a merger. To insure that you get commitment from employees, make communication and addressing employee concerns a top priority. Simply paying staff the same amount post-merger, or even giving increases in pay, will not automatically solve issues of compensation dissatisfaction. Keep in mind that it is not so much what you earn, but what you think you earn and what it is that you want from your organization that is important to most people. These issues are brought to the forefront of employees' minds in a merger situation. In addressing them, it is not enough to simply be just and fair with your employees; they have to perceive that they are being treated justly and fairly.