A new study reveals that nonprofit organisations report higher impact when they don’t reward high performance with higher salaries. Conventional wisdom indicates that employees are more motivated to deliver results–and therefore create higher impact–when they are compensated well for their efforts.
This study, conducted by the Centre for Behavior Change and Impact (CBCI) at the University of New York, demonstrates that impact on the ground is actually impeded by rewarding high performance with high salaries, raises, or bonuses.
Organisations report higher impact when they don’t reward high performance with higher salaries.
It indicates instead that the best performing nonprofits are those that hire and retain truly passionate individuals, without rewarding that passion monetarily. “Passionate employees thrive in environments where they are given the opportunity to tackle big challenges, while also being given the freedom to experiment and find innovative solutions to these challenges,” says Dr. Susan Chan, who led the three-year study.
Not everyone is convinced by these findings. Hari Padmanabhan, a professor of behavioural sciences at the University of Santa Rita, New Mexico has led many research studies that advocate for better compensation in the social sector. Padmanabhan says that he has concerns about the validity of these findings. However, CBCI asserts that this was a prevailing trend across the 35 nonprofits that participated in the study, regardless of their maturity or location (the participating organisations were South Asia-based, headquartered in four countries: India, Bangladesh, Pakistan, and Nepal).
Of the 35 organisations surveyed, 20 paid below market wages (Group A), 10 paid their staff competitive salaries (Group B), and five compensated their staff well above market rates (Group C). After 3 years, Group A reported higher levels of motivation, better performance among field and head office staff, and greater impact on the ground than Groups B and C. In fact, Group C saw higher levels of attrition than the others.
CBCI’s initial hypothesis was that monetary rewards and social impact are directly proportional; ie, when employees receive tangible compensation, they are likely to feel more valued by their organisation and are motivated to perform better, leading to higher social impact. Instead, they learnt that this does not hold true for nonprofit organisations, where the motivation is primarily to ‘do good’.
Research of this nature is fundamental to deepening our understanding of how the social sector can ensure that every dollar spent, creates maximum impact. For decades now, the social sector has debated the most efficient ways to create impact, and this study throws some interesting findings into the ring. Donors too, will do well to pay heed to CBCI’s research and its implications.
Obviously, we’re kidding. Happy April Fools Day! Please pay social sector professionals adequately.