Nonprofit Variable Pay

Organization-wide annual incentive plan. The use of organization-wide plans (or sometimes division or group plans) has expanded significantly for both the for-profit and nonprofit sectors. Organization-wide plans differ significantly from individual plans by rewarding different measures. One way of viewing these measures is in terms of whether they are a measure of effectiveness or efficiency.

• Effectiveness. The degree to which a goal or standard has been met. For instance, a charitable organization may set a goal to increase the number of persons served by 20% this year. Organization-wide measures that mainly are designed for top management are most likely to involve this type of plan.
• Efficiency. Using resources in such a way that more is accomplished with the same resources. This type of measure is more related to attempting to increase effort and, as such, is more appropriate for plans that include all employees. These plans usually reward increases in productivity of the organization as measured by reduction of organizational costs, in comparison with some measured "normal" cost — or they may reward increased outcomes with the same or improved resources. Most organization-wide plans, however, reward an increase in organization-wide outcomes that directly reduce the expenses of the organization.

A major feature of an organization-wide annual incentive plan is that all employees are plan participants. It encourages teamwork and cooperation throughout an organization. The objectives are clear and consistent organization wide.

Combination. A combination of outcomes is relatively common in an annual incentive plan. For example, the plan may be measured 50% based on achievement of organization-wide service goals, 25% based on organization revenue gain, and 25% based on individual performance (or attainment of MBOs).