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Time for Nonprofits to Revisit Performance Management and Pay Strategies

Pay for performance can be right for all organizations

A group of people talking in an office.

Because not-for-profit organizations' priorities often revolve around their social missions, their organizational cultures tend to differ from those of for-profit companies, including how they approach pay. But nonprofits shouldn't dismiss the benefits of revamping their compensation strategies to tie pay to performance, advised Tracye Weeks, SHRM-SCP, team leader and senior consultant at San Francisco-based NonprofitHR, a Black-women-owned human resources firm, and Tina Twyman, SHRM-SCP, a senior consultant in the firm's total rewards practice.

Speaking June 13 at the SHRM Annual Conference & Expo 2022 in New Orleans, Weeks and Twyman said the mission of many nonprofits is focused on social change or alleviating societal problems. But that doesn't mean they can't tie rewards to performance or "marry" compensation to performance management.

"Doing so can further the goals of rewarding people equitably and cooperatively," Weeks said, and do more to enhance collaboration and trust between managers and workers than simply providing automatic, built-in raises or bonuses that are equally parsed out to staff.

Continuous Performance Management

Before shifting to performance-based pay, performance management may need to be "blown up and put back together," Weeks said.

"Performance reviews aren't fun," at least not as they're usually done, she said. Throw out yearly performance management appraisal programs and replace them with cyclical feedback conversations, she advised.

"Once-a-year reviews are dreaded by managers and employees," whether they are in the nonprofit or for-profit space, Weeks noted. Instead, managers can check in weekly with their team members to ask if they're overwhelmed or to share client feedback. Quarterly, organizations can review performance so that, come the end of the year, there is a record that can be reviewed against employee and team goals and rolled into pay budget decisions. "Make these professional development conversations," Weeks urged.

"When leaders provide consistent coaching, engagement goes up," Twyman said.

As for goal setting, it can be a collaborative exercise. "Meet in the middle and agree on terms aligned with organizationwide and team-level strategic priorities," Weeks suggested.

Paying for Performance

Before linking pay to performance, Weeks and Twyman advised, organizations should update their job descriptions and benchmark staff salaries to the external market.

This can mean fixing issues around "title inflation," where an employee may have been given the title of "director" in lieu of a raise, for instance, so that "you have directors with pay that isn't in sync with market rates."

Tie performance reviews to meaningful pay adjustments. "Everyone can't be top performers," getting 6 percent or higher raises when the average is 3 percent, Twyman noted.

That doesn't mean pay shouldn't be "equitable," but it needn't be "equal," she said.

To ensure pay structures are fair, explain pay ranges and compensation strategies that link pay with market rates, with added incentives for top performers, whether that's built into merit increases or incentive bonuses. Then communicate your pay philosophy on pay for performance.

"Tell a story by communicating your compensation philosophy," Twyman advised.

Pay for performance also can mean paying employees for skills development, she said.

And if an organization decides not to link pay to performance, "find creative ways to reward and motivate staff," Twyman recommended.

Through a DE&I Lens

Because of nonprofits' social missions, they are more likely to view compensation philosophies through a diversity, equity and inclusion (DE&I) lens, the presenters said.

"Evaluate performance equitably, review staff data and identify pay inequity," Twyman urged. "Calibrate performance pay increases" among various stakeholders. Evaluate feedback from employees and solicit the view of departing employees to bring to light hidden issues.

With continuous performance management in place and pay tied to performance, "ask whether supervisors are adequately prepared to explain and guide employees to success, and whether these processes are applied consistently across your organization," Weeks said.

Doing so can foster higher employee engagement and retention, whether the organization is for-profit or not-for-profit.


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