Oh, oh! Bonuses for nonprofit employees is making news again. The latest issue of The Chronicle of Philanthropy includes a major feature by staff writer Holly Hall on the debate over whether nonprofit workers should be given bonuses.
When I advocated bonuses in this column a couple of years ago, I was verbally skewered by some professionals in the nonprofit world. Since that time, the number of organizations embracing bonus systems has increased dramatically. Ms. Hall reports that five years ago a paltry 7 percent of nonprofits had a bonus system in place. Today, in nonprofits with more than 10 employees, that figure is 20 percent, according to a recent survey by The Hay Group.
Part of the increase may be due to tough economic times. Rather than raise salaries at a time when charities barely have enough cash to operate, nonprofits can give bonuses, which are a less costly way to motivate employees.
Another significant reason for the increase in bonuses is the rising influence of entrepreneurs as board members at major nonprofits. They see firsthand that bonuses can result in increased productivity.
On the negative side, some nonprofit executives and volunteers worry that bonuses may not be received well by donors. They feel that donors may be put off by seeing their donations go to nonprogram expenses. I personally have a hard time buying this logic, since salaries are usually the single biggest expense for a nonprofit.
Whatever the reasons for or against bonuses, what mechanisms should a nonprofit that decides to use them use to make them work?
A good bonus system should have goals. Why is it being used? What does the organization hope to gain with the program?
Too often, even in the for-profit world, bonuses are a form of perk for managers, who dole them out to solidify employee loyalty. Instead, bonuses should be tied to the mission of the nonprofit organization. In what ways will the bonus system help the mission?
Next, for maximum impact, everyone in the organization should be eligible for a bonus, from janitors to the CEO. At lower levels of responsibility the bonuses may be cash awards, and at the higher levels a percentage of salary. This is often accepted by employees, once they understand that bonuses should be tied to the level of risk and responsibility one assumes.
A solid bonus program involves all levels of employees in its design, implementation and evaluation. This process can be a constructive first step in accomplishing what should be one of the most important goals of any bonus program -- fostering teamwork. To that end, strong bonus systems take into account individual, departmental and organizationwide goals.
For example, if a department exceeds its ambitious client counseling targets during a time when staffing is short, extra organizational funding becomes available for use in bonuses.
Of course, there should be built-in caps on bonuses, so abuses are scrupulously avoided. Finally, methods of distributing bonuses need to be both fair and rigorous. Unfortunately, bonuses have an insidious way of becoming automatic, sort of a back-door way of increasing compensation, usually for top executives. Bonuses should be incentives for employees to go well beyond the expected.
Aside from better services to clients, there is a side benefit to a well-functioning bonus program. It eliminates one of the major objections to its implementation. When the system works, every donor gets more bang for their buck.
(Lester A. Picker is a philanthropy consultant. Write to him at 71 Bathon Circle, Elkton, Md., 21921;  392-3160.)