Nonprofit Variable Pay

Employee Perceptions

Employees must accept the variable pay plan as fair if it is to work. Obtaining this belief requires continuing communications.

The conditions of the plan must also be accepted by the employees. Further, the conditions should not be changed except under agreed-upon circumstances. Employees' fear of their pay being cut is the force behind restricting outcomes and employee distrust of variable pay plans. Accepted standards require capable administrative staff and supervisors who are not only technically competent, but able to secure employee approval of standards and the standard-setting process. Successful variable pay plans emphasize measurement rather than negotiation in the setting of standards. Obviously, acceptance of measurements requires confidence in the fairness of management.

It is essential to keep the variable pay plan simple so that employees can understand it.

All procedures should be thoroughly explained, and complicated earnings formulas should usually be avoided. Employee trust requires that employees understand how the plan works AND how the plan affects their pay.

Establishment of Performance Standards

Performance standards lie at the heart of any variable pay plan. How these standards are established goes a long way toward achieving their acceptance. It is important to consider desired outcomes when developing performance standards. The acronym, *MARC, is an easy reference that may be used to test your performance standards to ensure that your focus is on these outcomes. A test for MARC requires that the performance standard be:

*M  Measurable
  A  Achievable
  R  Relevant
  C  Controllable

Once the performance standard is written, ask yourself if it meets all of these requirements. If it doesn't, the standard could be subjective and should not be used.

Participation is one way to aid in acceptance. There must be an established process for contesting standards, and the solutions must be acceptable to employees and the organization.

Developing acceptable original standards is not as difficult as obtaining acceptance of changes in standards. Because of employees' fear of rate cutting and job loss, any change in standards is likely to be resisted — no matter how justified. But changes in materials, methods, and equipment require changes in standards if the variable pay plan is to remain effective for the organization.