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The literature of nonprofit organization has been discussed in various fields including accounting, political science, human resource management, economics, finance, organizational behavior, sociology etc. The main subject of concern discussed in this paper is how employees in the nonprofit organization remunerated, is it on time basis, is it based on performance contract or are they remunerated like other employees in the private sector. A fictitious company XYZ has been given and examined how they remunerate their workers and in the process the pros and cons of such methods given. The paper has also discussed the forms of incentives available to employees in the nonprofit organization, these include such things as overtime, provident fund compensation on injury the paper has further discusses the benefits of working in a nonprofit organization. These are listed down as;
a) Flexible working schedule
b) Paid sick leave
c) Few working hours
d) Availability of amenities to employees.
The paper has also gone into comparing how employees in various sectors in managerial level are paid as compared to the managers in the nonprofit making organization. Finally the paper has gone into the issue of research areas that have been neglected for long and are yet to be done either for the first time or in details. The paper ends in concluding the matters discussed above.
These institutions face challenges when it comes to remunerations. The main reason for this is their nature since they can’t be classified as either government or private sector. They are somehow in between. There are some questions that we may tend to ask ourselves, how does their payment structure look like, is it like the government which they found their wages on either contract or event or is it like the private sector which insists so much on the performance contract? There are so many nonprofit making organizations which would like to make their wages on the performance deal but most of the times they lack the ability to enforce such laws
The non- profit making organizations commonly known as NPO’s include associations for professionals, charitable organizations and other cast not for profit organizations. In the year 2004, a report was broadcasted by OHRPA membership directory stating the number of members that were listed as four hundred and fifty seven (457) organizations. This accounted to a percentage of approximately 15 who were NGO’s. This 15 percent represented sixty nine of them being NGO’s which had a very impressive track (Powell, 2006).
Most of the type nonprofit organizations are not publicly featured yet they are ranked as level four in economic terms in Ottawa after the following;
a) The government
b) The public sector i.e. Universities, hospitals schools and hospitals
c) The private sector especially technology
d) Non profit making organizations
These institutions face challenges when it comes to remunerations. The main reason for this is their nature since they cannot be classified as either government or private sector. They are somehow in between the two. There are some questions that we may tend to ask ourselves. These questions include: how does their payment structure look like, is it like the government which they found their wages on either contract or event or is it like the private sector which is very much insisted on the performance contract? There are so many nonprofit making organizations which would like to make their wages on the performance deal but most of the times they lack the ability to enforce such laws (Barbeito, 2004).
Since people do organizations, it is very important to consider their results; this is to ensure that progress is achieved in these different organizations. It is always trying to maintain a good team within an organization. This is because the members of staff may feel stressed up, moved away from the core duties and can even want to go to other organizations. There are so many ways that will help ensure that the staff remain motivated and enthusiastic, this includes applying the control system of performance. In this time the company and the principal work hand in hand to ensure planning, implementing and evaluating the performance of their work in the given organization structure on objectives.
We can consider the earnings business results being faced by XYZ a non existing company
The policy on the performance management is the essence of how realistic the company XYZ (Typical NPO) would like to save on a way of paying its workers based on how they operate. For example, if one pole is differently remunerated would it because of his good behaviour? How large should the gap be, will annually reimburse exceedingly the more productive teams than the less productive ones? The answer to this problem is complex in class but it requires the managers of NPO to meet.
The essence of this item is to compare the merits and the demerits of the distinct approach of compensating employees i.e. paying on the basis of performance against or across the panel budget growth referred to as COLA-cost of living adjustment. It gives an analysis of the mode of remuneration which is most appropriate.
The table below gives the small point summary of the relative difference between the two modes of giving wage increase i.e. the pay for performance versus traditional budget increases.
Background information required
Noting of employees annual data and performance contract
Annual CPI movement for Ottawa, information on remuneration improvement in Ottawa.
How easy is it
Depends on employee
It is always equal to all employees
The best performers are highly rewarded
No difference between high and low performers
Higher performers easily cope with inflation
All employees on the are the same
The trend used
Normally the XYZ Company has been practicing the two approaches as a blend. This means that rewarding employees based on the performance i.e after the usual appraisal for the year is done and also by giving the inflation increase which has a cost of living which has been adjusted in it. Although it is a blend, still the good performers would be highly rewarded more than the poorer performers. The ratio used is (1-2%)
The question to ask would be: is the policy of XYZ of 1-2% good enough? Would the organization consider linking more performance than the current existing mode of practice?
The extent of emphasizing that should be placed on the performance is a very crucial decision of policy; this is because it affects employees on a one on one basis, how they behave and what are their attitudes. Before adopting the said policy, some factors should be considered like fairness, the managers should understand a way of judging performance in order to ensure that it’s fair enough. We should also recognize contribution of employees.
Pay- for- performance
It is also termed as a pay for merit. It joins rewards to what the organization is set to achieve in its objectives. This gives the staff a chance of getting some rewards in form of cash basing our success on the set, attainable targets of the related XYZ success.
The guiding principle on the performance timetable alignment should also be stressed. There has to be an alignment between;
a) The set goals or corporate goals of XYZ
b) The computation of how these targets are reached and passing it to the rest of the members of the organization.
c) The singling out and measuring the behavior through appraisal setting objectives and assessing.
d) Using the appraisal technique to obtain actual results which helps in determining how the system works.
e) Checking whether the workers behavior are required to support and move the goals
Other factors that are needed include:
a) Showing the managers organizational commitment to be aligned to the above listed elements.
b) The invention and bringing up of culture of setting targets, business planning, measurement of program and personality of individuals.
c) An assurance of giving reward to top achievers, even when the overall program objective is not met, or when the economic conditions are harsh.
Annual Economic Increase/ Living cost adjustments
When we compare the adjustment to cater for the cost of living will present the staff equal percentage of remuneration across the board. This is normally distributed to everybody regardless of how one performed. Staff members will always compare their salary increase to the living cost. The argument would be that the cost of living has increased thus the employer should also increase their pay.
There are 3 concepts which are related:
(i) Change employees’ cost of living
(ii) Change in Wages/Salaries
(iii) Change in wages/salaries in the labor market
An increase in the cost of living is a person owns function in his or her budget. Prices are set to change from time to time, while the services provided in the market will always be measured in the consumer. The act of trying to fix salary changes is called indexing. The changes that occur i the market are annually measured in the annual salary survey. These are changes that occur in the labor market.
Performance planning and appraisal.
Performance planning is where both the employee and his supervisor discuss and set the targets and the plan of work to be attained by the worker relating to his/her ability, number of years worked, availability of the required resource and what is to be achieved. When we say that the performance is being appraised it means that the worker gives regular feed back to the supervisor and he will evaluate his performance on an ad hoc basis so as to ensure that both the supervisor and the employee are okay with the progress of the work. Performance improving is where the supervisor employs different ways to make the employee motivated .This includes giving presents; incentives etc to the workers with the aim of making them work more effectively. For those employees whose results have been wanting, the organization may decide to arrange for more jobs or extra job trainings.
Merits of a good remuneration scheme
a) It outs exactly what is expected
b) The individual performance is highly improved
c) It always recognizes achievements and those who reflects the organizations goals and mission
d) It instills the satisfaction in the job and the remuneration
e) Gives rewards to the most hardworking employer rather than the title
f) Gives rewards equal to what one offers the company, good performance better remuneration and poor performance low increase
a) There so many things required to manage the guidelines and factors
b) There is so much work required in upgrading the performance appraisal
c) The organization will need to train the manager on the documenting and assessing of work
d) The plan needs to be informed to all the employees
e) The process needs to be managed on an annual basis
f) It favors individualism disregarding team work
How qualified are NPO staffs
Although NPO workers work out of love, compassion and more than a feeling for fellow human beings, the fact remains that they are professionals who have undergone some training. They need to be competent in whatever they are doing. It is always hard to deliver without staffs that are qualified especially in case of a charitable organization in some places. In these places, nothing will always go on as planned. There has been an argument that for one to hold on to a staff who is qualified he/she must pay a good salary a thing which some NPOs practice while others never do it.
Salary Retention Strategy
Private sectors have their own ways of retaining their employees, the same ways they use the NPOs should also learn from them. Such methods would include;
a) Being remunerated at the market rate
b) Recognizing employees on their hard work and developing their careers
c) Relationship in the work place including with their immediate boss
d) A balance should be stricken between work and life activities
It is highly advisable for NPOs to consider developing. They require human resource management in the areas mentioned above which are considered rampant in such organizations. Remuneration of staff correctly is very important in maintaining employees in the organization however, they should also be given enough time off to be with their families and friends. If there is also a strained relationship between an employee and his boss, it would also make an employee leave an organization. Therefore, there should exist a well enhanced system of leadership.
Salary and benefits in Non-governmental organizations
Besides the salaries that employees of different organization get, they should also get the following benefits and compensations.
The rule is that any employee will be entitled to receive a bonus at the end of the year which is the same as a months pay. They are normally added to the month’s remuneration of a month before the close of year. There are exceptions when some staff will not receive the bonus, this include those staff employed at the mid of the financial year and their probation of about six months is not over.
b) Provident fund
The staff is always required to put about 10% of their monthly salary to go to his provident fund. The non-profit organization will provide the same on every payment period i.e. monthly basis. These two contributions will be put to an account of saving whose bearer will be the employee. The only thing that can make one withdraw from such a fund is resignation otherwise the fund will stay as one stays in the organization.
c) Compensation against injury or accidents in the cause of duty
In case a staff member is injured in the cause of duty in an NPO, should be office hours or field trips, the employee will be compensated an amount equal to his 2 months’ salary for use in medical attention if any.
d) Number of days worked
All nonprofit making organization follows a Monday to Friday working schedule i.e. 5 days a week. The other two day Saturday and Sunday isn’t considered a working day unless there is a provision or the organization do a ‘gentleman’s’ agreement to work on the weekend. They also consider public holidays as non working days as prescribed by the government. It is a requirement that the administrator makes a working calendar showing all the holidays that will be observed by the organization and a copy should be given to all the staff members.
e) Office hours
Their office hours is the same as the in the civil service, in most cases, 8 hours a day from 8 am to 4 pm or from 9.30 am to 5.30 in the evening. In these 8 hours one hour is expected to be set aside for lunch purposes.
There are some factors which need to be given consideration such as the work load, efficiency operation, needs of staff; all these may need different number of hours worked by an employee each day. This may necessitate working beyond the stipulated 8 hours a day. The staff who will work in this kind of arrangement will be entitled to a pay over and above his normal pay and at a slightly higher rate. This will be given an authorization by the supervisor in charge of that department. The rate of overtime is normally calculated on the basis of time.
However non-profit making organizations do not have a systematic policy on pay in place; these can be put down on a paper in a very clear policy in place. The managing director will have to inform the donors or the employee. There are various ways in which compensation should be done.
There exists a compensation policy which ensures that:
a) The director should make a compensation that is explicitly in a form of guideline. For example paying for all the positions at about 80-110% of the median rate. They should also ensure the rates are comparable to other non profits organization in the area or one which is able to cater for the expenses of living in the said area.
b) The person who will sign the pay is put in place. For most staff this could be for directors, managers, division directors etc
c) The guidelines on when and how the pay will be raised either depending on the cost of living or in relation to the existing market rates are also put in place.
d) Some process of appeal by the people who feel like their pay is supposed to be high or they have been unfairly treated would seek redress is allowed.
e) Informing the staff members whose compensation details would be put in the by-laws, which is actually fixed by the board of directors or the and they are not supposed to be put in compensation guidelines since they are very much in detailed form
How to calculate the rate of non profit at the prevailing rate
Calculation of this rate can be achieved through a couple of the following ways.
a) Giving very precise job descriptions for every department. It will be in remuneration rates, hiring and also helping staff to be aware about their specific roles and avoid any conflicts that may arise
b) The other way we can be able to get the compensation rates is by use of online services, one should just make sure that he is checking the correct category for nonprofit. If this doesn’t help one can check whether there is a way he/she can adjust the information given to suit his category
c) Putting the information in a document as proposed salary, including the derivation of the said salary
d) Having the board of directors approve the salary.
Benefits of working for nonprofit organizations
There are many benefits which come with working for nonprofit making organizations either in material form or non material form. Some of these organanizations cannot pay their staff at the prevailing market rate however there are still many advantages associated with such organizations
In countries like the United States, charitable organizations or non- profit making institutions like the church universities, some hospitals are always exempted from remitting tax to the government. Their work normally varies and is broad but aalways have the same mission of helping in service provision rather than earning profits. They receive gifts as opposed to selling stock and endowments to give a support to their financial plans. Nonprofit organizations are not necessarily poor financially but are sometimes very successful.
Employees in nonprofit organizations are not necessarily volunteers who are unpaid, some good percentage of these organizations mostly large ones have paid staff like any other business. The basic salary of large non profit making organization is even higher than for the profit corporations, in even some nonprofit making organizations they go for talent rather than anything else especially in very strong stable economies like the US. This mostly occurs in institution like the universities where students are given a chance of working as a research assistance e.g. MIT
Although the employees of nonprofit making organizations do not get stock options like their counter part employees in the profit organizations they often get bonuses in addition to their salaries,there are no set goals to achieve for which a bonus can be tied to.
The other form of benefit available to these employees would include long vacations, sick pay, well calculated plans for retirement, dental insurance, reimbursement of any tuition fee incurred, very friendly working time schedule without long overtime, in institutions like the university one is able to use such facilities like the library, sports field and even membership in their unions (Pynes, 2008).
Difference in pay between profit organization and nonprofit organization arguments
There are so many reasons being discussed about salary scale in profit and nonprofit making organization. Some have argued that the nonprofit making organizations pay less because they are donating wages to the organization they work for. The difference in what is earned elsewhere and in the nonprofit organization is given in form of donation to the nonprofit organization (Cordes, 2009).
Since the work in non profit making organization is slower in pace, it has flexible working hours, stable prospects of jobs thus the employees won’t really complain much given the low amount of pay. The other reason would be that there are some employees who would be hard to monitor, in exchange they are given a high remuneration thus will be living in fear of losing the job since it will be hard to get the other one of the same nature. Lastly it is argued that the people who work for nonprofit organization are generally volunteers and money is not one of their core reasons why they are there but it is to satisfy the ‘higher’ calling.
Performance contract pay in nonprofit organizations.
The idea of using performance contract to pay employees in the nonprofit sector is not very new. Since the nonprofit organizations use the non distribution way, it makes pay based on performance contract very insignificant. When it comes to matters of the law it’s actually possible to pay salaries in nonprofit organizations based on its earnings. This can be done by giving to the contractors and employees who are outside. There are so many kinds of remuneration in non profit making organizations and are not limited to paying for knowledge, pay based on the skill, broad banding, merit pay and gain sharing (Hopkins, 2009).
The remuneration given to a manager, which is different with surplus achieved by the firm, is seen as profits being distributed whether it is the state authority or with policing nonprofit organization or by the revenue commission. There are so many cases where the incentives are in monetary terms so as to encourage the employees in the nonprofit organization. It has been discussed that the nonprofit organization are very much becoming good in how to remunerate their manager in order to keep them in the organization and more so in attracting them. A survey which was conducted on compensation and benefits for individuals members and societies concluded that many organizations are giving and will continue to give pay inform of incentives to the very top managers.
On top of this Ernst and Young’s not for business group carried out an observation of 250 organizations not for profit in New York city and came to a conclusion that 16% of the number survey had a form of incentive in their pay in the year 1990. This has served as a good show that the nonprofit organizations are resourceful, committed and determined (Hopt, 2010).
In the year 2007 a survey was carried out nationally to compare the pay of employees in nonprofit making organizations, the private sector, the government and these were the findings;
a) Generally the full time employees had a better rate in the nonprofit making organizations than in the private sector in totality, but the rate was low in terms of hours in the government as opposed to the local government.
b) The managing directors in the nonprofit making organization earned wages that were very different from those in the government, even though their salaries were lower in average terms as compared to the private sector and the local government.
c) The people working in finance operations, business occupations had a higher rate per hour in the nonprofit making organizations than in the government, even though the salary of those in the local government did not vary much with those of the government. Income in the business and finance people were the highest in the private industry as a whole.
d) Computer scientist and mathematicians working for nonprofit making organizations were earning more per hourly basis than the three of them in state government and the local government although their pay was low than in the private sector.
e) The nonprofit making organization employees and the administrators had the same income as compared to their counterparts in the government and the private sector, although the pay was lower in the local government.
f) Wage differentials
There are so many authors who include; Bulbridge,Glaeser and Shliefer, Young, James, Rose-Ackerman, Handy and Katz who gave the suggestion that the reason why we may expect a lower wage in the nonprofit industry is because of the social services received in the non-profit jobs (Borjas 1996) (Note 11). The case where one is trying to pay the difference is one where an employee is paid more when his chances of dying are high due to the risks encountered. The higher pay is normally to cover for that risk. There are many examples explaining this case including one for Rosen. Many suggestions that show that nonprofit give amenities to cover for their low wages includes things such as pleasant work environment, job flexibility more stable positions and more control on the work (Zietlow, 2007).
The future research in nonprofit organization
In relation to payment there are many reasons for differences in pay, including, labor donations, efficacy, compensation, differentials and ability to variations. Even though there is concern about information that has greatly influenced the research on pay differences in nonprofit organizations for some time. The more we get reliable data on the same people who switch from profit to nonprofit organization and they would give very important information in this regard. The other option would be to introduce sector details into the existing longitudinal data set which will help to investigate the ideas.
The second future research avenue is the relationship of sector choice. Why would an individual choose to work in a nonprofit organization instead of a profit making firm. Would we say age is a determinant such that at a certain point in life one feels like working in this organization rather than the other? The other issue which is a factor of research would be gender, at the moment about 60% of the employees in nonprofit making organization are women, in addition the managers in nonprofit are women, this statics show that it is another wanting area for research.
Many nonprofits have started to remunerate their employees based on performance; this is another direction for more work to be done in the future. Even though there are many challenges in computing performance in nonprofit, recent works on the same have given some encouraging results.
Since organizations vary so much internationally, this would build another basis of our research. This issue will most likely be very hard since even the definition differs from one country to the other. Interestingly, this kind of research will be highly informative.
Lastly the heterogeneity in a non profit making organizations has proved to be hard. Since we have some classification i.e. NTTE, it would be a good course to study the remuneration of managers and staff of nonprofits within industrial sectors
There is interestingly little research done on nonprofits in the US, in other countries they are close to nothing. There are a few exceptions when we mention that for profit organization generally. The challenge of comparing that for profit organization is described below. In a country like Germany in their vocabulary they don’t have a word like nonprofit which they use a word close to that like ‘Organisation Ohne Erwerbscharakter’ which means organization with no profit motive or commercial character’. In the US the nonprofit are also known as non-governmental organizations (NGOs), private voluntary organizations (PVOs), or community associations. In addition to this, tax breaks do not also occur in other countries like it does in the United States. In the United Kingdom there is scattered information about the voluntary sector, As a result of this the name Taxonomy of Exempt Entities (NTEE) was started as a way of classifying nonprofit across countries (Senger, 2005).
In Italy nonprofit sector has been described with a broad overview which includes employment facts although it doesn’t give anything on compensation. An overview of employment and earnings in West German nonprofits were given out. The findings showed that Women comprised of about two thirds of the employees in the nonprofit economy and the remaining one third is in the other entire economy.Similary to the Us women are also very much represented in the nonprofit organization than men (Nuno, 2008).
The availability of more information will very much help in moving in the right direction. From the above description, the earlier literature on non profits was greatly affected by the fact that the nonprofit against profit making organization status of an employee had to be interfered with from that industry. The generation of new and well kept data will greatly help in the efforts of legislating and will lead to new scrutiny of nonprofit compensation of employees and leaders of non profit (Sobel, 2009).