Case - Gestas Michelle Morris would like your advice on a compensation issue. She is the Executive Director of Gestas Inc., a private, nonprofit human service organisation. The new president of the board of directors of her organisation has just proposed a new compensation plan for the organisation, and she wants your opinion of it. Background Gestas Inc. operates halfway houses where former prisoners live as they transition back into society. Begun thirty years ago with one house in Nashville, TN, Gestas has grown to 10 houses spread geographically among five states. Currently, Gestas has 30 staff members. It is one of the most successful programs of its kind in the country, in that is has experienced steady growth, has had a minimum of severe financial problems, and boasts a clear record of reducing recidivism (returning to prison). Recent data show that the recidivism rate of Gestas residents is well less than half the general recidivism rate. Three key features distinguish Gestas from other halfway house programs. One is that college students live in the houses with the former prisoners. The idea is that each can learn something about life from living with the other. Another is the heavy reliance on community volunteers for everything from cooking and maintenance, to fundraising and administration. Third, Gestas Inc. receives very little in the way of government funding. Overall, though Gestas is a small organisation, it is a very complicated one. It takes highly dedicated and excellent staff members to make a house run successfully. Staff morale at Gestas is generally high. Gestas attracts dedicated staff members who work long hours for relatively low pay. They are very much attracted to the "mission" of Gestas, and tend to be loyal to the organisation. When asked why they work there, they cite that good that the program accomplishes, and the challenge that comes from their work. Though turnover is a problem, it is not more of a problem than at most other nonprofit human service organisations. 1 Case - Gestas (cont.) The Plan Henry Sims, the new board president, has made the pay at Gestas one of his first priorities. Henry is a retired corporate executive who spent 30 years with Alcoa Aluminum. He joined the board three years ago, and was immediately impressed with the overall dedication and performance of the staff. He expressed shock, however, at the low pay levels. Salaries for local house managers, as well as Gestas Inc. staff (office coordinator, regional directors, and Executive Director) are well below the pay rate of jobs of similar responsibility in the for-profit sector. "For the work they do," Henry has stated, "they should be paid at least twice what they're getting." He is also concerned that there is no clear link between pay and performance. He argues that nonprofits need to operate more like organisations in the for-profit sector, which routinely link pay to employee performance. Gestas already has plans to initiate what will be an annual fundraising event. The plan is to hold a dinner at which a national figure is given an award related to efforts in progressive criminal justice. Dinners like this can net $75,000 or more, though the ultimate success of the dinner at raising money is likely to vary a great deal year-to-year. 2 Case - Gestas (cont.) The Plan (cont.) Henry's plan for addressing the pay problem is based on the expected income from the dinner. It has four components: Bonuses: First, the proceeds from the dinner will be used to provide a pool of money from which to pay staff bonuses. Evaluative performance appraisal: His second component is to change the way performance appraisal is currently conducted. Presently, staff receive "developmental" performance reviews, which are administered by Gestas Inc. These reviews attempt to identify strengths and weaknesses, with the objective of improving future performance. The results of these reviews are not quantified, and have no bearing on pay raises. Sims wants to change them to "evaluative" reviews, which will be quantified (i.e., each staff will be rated on a scale from 1 to 4) and will determine the bonuses. Link bonuses to performance appraisal: As a third component of the plan, Henry wants to divide the net proceeds from the annual dinner among staff depending on their overall quantified performance rating. Those rated in the highest 25% (i.e., receive a rating of "4") will receive the highest bonus. Those in the bottom 25% will not receive anything from the pool of money. Recognise the highest rated: The fourth component of the plan is to congratulate, at the annual dinner and in the Gestas newsletter that is distributed to staff, volunteers, and donors, the names of the staff members rated in the highest 25%. 3 Case - Gestas (cont.) Evaluation Sims is enthusiastic about the plan because he sees it as a "win-win" effort. Staff will like the plan, he thinks, because they will be receiving money that they otherwise would not. Even those rated in the lowest 25%, he argues, won't be any worse off than before. What advice do you have for Michelle? Should the plan be implemented as is, should it be modified, or should it be scrapped?