How to manage performance in the third sector

Third sector organisations are struggling to balance the ‘not for profit status’ of charities and associations with the commercial realities of paying bills, rent or selling membership. From experience, we know that performance related bonuses are not overly embraced in the not for profit sector, with many feeling that this sits at odds with the voluntary core and wider social purpose of these organisations.

Money as a motivator

The question is not whether money motivates in the not-for-profit sector. At Paydata we have always maintained that pay is a hygiene factor. Employees can become demotivated in the knowledge that their pay is not competitive or fair. We categorise reward structures for our clients into four areas: pay, benefits, personal growth, and culture and environment. Through benchmarking, we encourage employers to offer competitive salaries and benefits. Because this takes ‘pay off the table’, it enables the focus to shift to culture, environment and personal growth.

However, the issue with the third sector is the expectation by some that money should not be a motivator at all, with many involved in the organisation being voluntary workers. However, the skills shortage felt across the UK is reported as particularly acute in the third sector, with the suggestion that there is a talent crisis.

Designing reward to attract the right talent

The requirement to be more commercially-minded to survive since the recession has seen many charities faced with shifting practices and views in their strategies to attract and retain.
Designing reward schemes in this sector is a careful exercise with sensitive lines to be drawn given the multiple factors at play, including the culture of the organisation, the external competition for talent and the key stakeholders involved.

Factors such as low pay and the lack of apprenticeships and graduate jobs are all possible reasons why the sector is experiencing recruitment and retention problems. Combined with the additional pressures of being expected to operate as commercial organisations, organisations are struggling to adapt and accurately align their day to day operations with their social purpose. Talent is a key dimension where the balance sheet needs to be justified, yet without the right investment, the future of the organization is not guaranteed.

Attracting successful leadership

Leadership is critical to an organisation’s ability to flourish and requires the right investment. A number of executives in this sector are now paid bonuses. Employers with a social purpose should still be able to attract top talent to drive the organisation forward. Combined with the fact that the industry has experienced very flat pay increases, with pay increases being around 2.5 per cent since 2016 which has just kept pace with inflation, bonuses are a HR tool in attracting and motivating the talented people that the sector requires. Top executives could command a much higher remuneration package in other sectors, but shouldn’t be deterred from working within the third sector by feeling they are effectively working at a loss.

Individuals’ contribution is just as impactful in the third sector, if not more so given the size and profitability of some charities. To limit the remuneration package also limits the talent pool. When benchmarking executive roles in the third sector, for those who do grant bonuses, these levels average around 30 per cent in comparison to bonus levels of 50-100 per cent in other sectors.

The importance of competitive reward packages in the third sector

When thinking about whether bonuses and performance-related pay fit with the third sector, in our experience, employers face the conundrum of offering an attractive reward package or facing recruitment difficulties. It is a delicate line to manage considering the narrative provided to key stakeholders around pay and PR planning around executives’ bonuses. It is important to remember that the right talent is key to these organisations thriving and truly being able to support those they are dedicated to helping.