Talent Tip #87: Embrace the Power of Markets: Pay Your Best Talent Well or Risk Losing Them
If you are on this email list, you are a big believer in the power of free markets.
(And if you are not, let me know so that I can mail you a copy of Free to Choose and then we can have a little chitchat.)
Since you are a big believer in markets, you no doubt treat your employees accordingly when it comes to pay. Given that, I was disheartened to hear from several friends in the liberty movement in the last few weeks who are scouting for new opportunities because they feel they are underpaid.
They told me despite solid performance and positive feedback, their pay has remained mostly stagnant for a couple of years or more.
Why on earth would organizations that espouse the power of the market not pay market rates? Because they think they can get away with it? Perhaps. The leader of one prominent free-market group has been known to say, “We can underpay employees because they love our mission.”
Malarkey! Sure, we all love liberty. And many of us happily forgo a larger paycheck in another sector because effecting social change matters to us. But money matters, too. And if you are not paying nonprofit market rates, you will eventually lose your best talent to a more competitive liberty-oriented organization.
So, what can you do to make sure your organization is harnessing the power of the market when it comes to pay? I’m glad you asked! Here are four simple things to get you started.
- Review Organization Salaries Annually
In addition to regular performance reviews for employees, make sure you evaluate salaries organization-wide at least once a year. If you do it annually, you won’t give yourself a chance to fall behind market trends.Not sure how your salaries are stacking up? I always keep an up-to-date nonprofit salary survey handy and will gladly share it with anyone who asks!Remember this: you may not be keeping up with market trends, but the organization down the street probably is. Guess where your talent will go? I recently heard about an organization that instituted a pay freeze during the economic recession and still hasn’t lifted it. Sure, they are saving money, but they are hemorrhaging talent.
- Send Positive Financial Signals to Your Best Talent
Make sure you are rewarding your best performers. Not surprisingly, these employees are the most likely to be poached. If you’ve ignored their pay for over a year, address it immediately (if not sooner)! And remember raises aren’t your only tool; you can also employ annual bonuses, spot bonuses, and other financial perks. Finally, remember that financial reward is a signal of how highly valued employees are. As one of my friends put it, “It’s not just about the money; the money is an indicator of the importance they place on my work.”
- Communicate with Your Employees Regularly about Financial Matters
Employers often offer sparse or nonexistent communication about important financial matters that affect pay such as revenue and budgets. I’m not suggesting you share every financial detail with employees; but if you want to build trust and long-term relationships with staff members, be willing to share information that will affect their budgets and/or paychecks.Think of it this way: do you want employees to find out about your organization’s loss of a major donor from you or through the grapevine? If the rumor mill delivers these messages (and it eventually will because there’s a market for information, too!), trust evaporates and employees start scampering for the exits. But if you maintain an honest, open relationship with your employees about these issues (and if you have a plan to address them!), your employees are more likely to weather financial storms with you — even if it means temporary budget constraints.
- Develop a Reputation of Paying Market Rates
Underpaying employees doesn’t just create a problem now; it creates a problem in the future. If your organization develops a reputation of underpaying employees, you will have difficulty attracting talent in the months and years to come. Even if you correct the issue now, it will be many moons before your new reputation takes hold. Avoid the heartache today and tomorrow by paying market rates!
There you have it. Go forth, harness the power of the market, and pay your employees accordingly!