Nonprofit governance: Creating skin in the game for nonprofit managers
Creating a programmatic quality budget, which outlines the expected social impact of your nonprofit, will tie management performance to the most important thing of all: client outcomes.
Laura Hamilton, a sociology professor at University of California, Merced, published a paper in the American Sociological Review tying the academic performance of students to the percentage of the education paid for by their parents.
The result? Larger contributions from parents are linked to lower grades among students.
This got us thinking about the concept of having “skin in the game” – and how that might inform some of the persistent challenges we see in nonprofit management and governance.
On the for-profit side of things, skin in the game – your compensation being tied to your and the company’s performance – is a workplace staple. In addition to a base salary, executives are also compensated for meeting benchmarks – they could be specific to a certain company challenge, like reducing work-related injuries, or largely broad, like hitting certain company-wide growth goals.
We all remember the year Under Armour’s Kevin Plank stuck to his base salary of $26,000, collecting no bonus, because the Baltimore-based firm didn’t grow at the rate he expected.
In the for-profit sector, performance-based compensation is a staple: it is how we motivate managers and recruit the best talent for our executive teams.
In a nonprofit environment, applying a performance-based pay system is slightly less straightforward. Simply, there are multiple bottom lines.
Some of these bottom lines are fairly easy to measure, such as fundraising goals, and others are much more complex, like ensuring impact for the community served. All of these are competing for the attention of a nonprofit’s management team, and all are critically important. To the extent that nonprofit managers are evaluated and motivated to perform, it has historically been around the easily measurable goals.
We submit that this is a short-sighted approach.
As we’ve previously argued, nonprofit boards need to stop and create programmatic goals, each with measurable objectives, rather than focusing simply on fundraising. Like an audit committee dissects a nonprofit’s finances, we think nonprofit boards should develop programmatic quality committees to dissect the service provided by the organization. The members of such a committee would sit and pass judgment on the quality of the organization’s programs – based on goals developed without regard to fundraising considerations, and with impact for clients in mind. Many nonprofits would benefit from nonprofit bookkeeping services from experienced accounting firms to ensure that their economic affairs are all in order.
Fundraising shouldn’t lead programmatic decisions. In fact, we also submit that successfully developing and achieving programmatic goals is highly correlated with, and a predecessor for, fundraising success. Not the other way around.
Why? Through programmatic quality measurement, which involves in-depth analysis of the objectives and actions of an organization, a nonprofit can create a “skin in the game” relationship between its management team and better outcomes for its clients.
In this scenario, programmatic goals and objectives take on the form of a “programmatic quality budget” that lays out exactly what the social impact of an organization is expected to be. Through proactive data gathering and analysis, this impact can be measured and improved.
With measurement and improvement tied to the compensation of a nonprofit management team, we create an environment where managers can be rewarded. Not for raising the right dollar amount, but for achieving better outcomes for their clients.