Chapter 6
Personnel
If you compare nonprofit organizations with commercial and governmental counterparts, among the biggest differences is the central role played by boards and volunteers. Nonprofit organizations rely on board members and volunteers who offer uncompensated assistance and pro bono service alongside paid staff.
Human resources—talent and staffing—are key to nonprofit success because all activities are completed by, with, and through people. In nonprofit organizations typically upwards of 80% of the organization’s budget is spent on staffing or volunteer supports. Staffing and talent management is an area of significant risk for most nonprofits. We focus on some key personnel risks for nonprofit organizations.
As we have worked on this book, friends and colleagues have shared stories with us, and many of them have to do with personnel. Perhaps that’s because many of the personnel anecdotes are among the most colorful and easy to understand examples of nonprofit risk. In and of itself, that is one of the biggest risks organizations face: the personnel stories are so easy to understand and, in many cases, so outrageous, that they make great material for news articles and exposés. The raw material is terrific from an editor’s point of view. The story can have everything—a story that’s easy to tell, often a big financial loss, and, on top of that, a relatively easy to find story of the innocent people who have been hurt by incompetence, criminal intent, lax supervision, or some combination of these. We have tried to share with you some of the real-life adventures we have seen and heard in the nonprofit world, but it is in the area of personnel, that we have put several of those stories aside because we fear no one would believe them.
The risks described in this chapter are:
–Working for good
–Conflicts of interest
–Conflicts of role
–Managing credentials and performance appraisals
–Working with management
–Reliance on volunteers to deliver service or hold client/community facing positions
–Compensation ceilings on executive pay
Working for Good
The ethos undergirding work in the nonprofit and NGO sector can be characterized by the phrase, “working for good.” The assumption is that working for good is distinct from working for profit.
There is often a disparity in pay between nonprofits and their government and commercial counterparts. The disparities vary from organization to organization and from field to field. But typically, staff in nonprofit organizations come to work on mission, doing good, or making the world a better place.
The topic of pay discrepancies between nonprofits, government and commercial enterprises is worth thinking about because it is part of the nonprofit and NGO landscape and directly affects recruitment, retention and turnover of staff. In and of itself, it doesn’t always create risk, but it does drive organizational culture and the risk and reward atmosphere in and around the organization.
Personnel in Action
Personnel risks occur in every functional area of operations. Not all staffing risks are unique to nonprofit organizations.
What to Watch For
Here are some of the most common risk factors in personnel activities for nonprofits.
–When there is a mix of paid staff and volunteers, is it clear what standards and rules apply to each group? For example, rules about the amount of time off allowed may differ for the two groups, but it is perfectly reasonable to have common standards regarding notices given for planned absences.
–Employees of nonprofits often know what is happening in their field whether their comparisons are with commercial or nonprofit organizations. Not only can they compare salaries and benefits, but they can compare opportunities for training. With constrained budgets, some organizations (both commercial and nonprofit) sometimes “economize” by minimizing out-of-office training. In both commercial and for-profit organizations, this can often be a false economy. In some environments, nonprofits are more competitive in terms of training and professional development, which can help counteract lower salaries. In other environments, the reverse is true.
–In using volunteers for any purpose, does the organization have a policy and practice of thanking and celebrating volunteers for their service? Volunteer work is valuable both to the organization and the volunteers, and should be recognized as such.
Additionally, the following risk factors also need to be identified.
–Do personnel, including managers, clearly understand their roles and responsibilities as well as those of the organization itself?
–Do all personnel (volunteers and paid) have the skills, training, and regular supervision they need to do their jobs? If they are routinely asked to perform other tasks, is there a clear protocol for managing those requests? Is there a protocol for passing on the information so that training or resources can be provided next time the situation arises?
–Is there a convenient and useful method of tracking services provided by volunteers and converting this in-kind assistance to a revenue projection? “Useful” means that is useful to staff, managers, and those members of the public who need access to it.
–For activities that involve standards and compliance, are employee and volunteer policies and handbooks updated annually to reflect changes in legislation or regulations? Are your pre-service, in-service, and compliance refresher trainings updated regularly to conform to new requirements or organizational needs? (This can apply to volunteers and paid staff.)
–Do you track and understand the root causes of staff and volunteer vacancies and turnover? Are your vacancy and turnover rates comparable to peer organizations?
–Do staff and volunteers have access to the technology they need to do their work and clear rules about the proper way to handle information? This is particularly important so that confidential data about the organization and the people it serves is not revealed through personal email accounts, is not retained on personal devices, or otherwise shared without permission.
–Are there clearly understood guidelines for the use of social media?
Conflicts of Interest
Conflicts of interest appear in all organizations. A conflict of interest arises when a staff member, board member or volunteer has an interest in or stands to profit from a transaction or decision made by the organization. That is why nonprofits need a conflict of interest policy and regular training for staff, board members and volunteers. Conflict of interest policies protect the nonprofit organization’s interests particularly when it is contemplating a transaction that could benefit the private interest of an officer or director or staff person or related party.
What to Watch For
Here are several examples of conflicts of interest and how they may arise.
–Independence of board members. Members of a nonprofit board are assumed to be independent and objective people who are interested in the organization and its activities, and who will work to advance and promote the goals of the organization as their primary concern when they are serving on the board. A healthy nonprofit board has a diversity of people with relevant expertise and perspectives. Particularly in small communities, conflicts can abound. For example, in a board of five members, if two are closely related, it is necessary to guard against the appearance that they may be acting together to further personal interests, which may not be totally congruent with those of the organization.
–Financial interests of board members. If a nonprofit board is considering hiring a contractor for a roofing project and a board member owns a firm that will bid on the work, the organization’s conflict of interest policy should serve as a protection against the appearance of self-dealing or financial gain. Provisions in the policy for disclosure and recusal can offer nonprofit organizations the opportunity to consider such a bid while protecting the organization’s interests and resources. These situations pose many risks as does a situation where a board member or relative offers to do the work at a reduced price that benefits the business as well as the organization.
–Conflicts of interest with staff and clients. Conflict of interest policies also offer protection against reputational risk. Strong policies and annual training can prevent accusations that a board member or staff person has given favorable treatment based on a personal relationship or financial interest.
Prevention
It is considered an essential practice for members of a nonprofit board and executive staff to review the organization’s conflicts of interest policy annually. Minutes that include board action to approve the updated policy and signed attestations that board members have received training are best practice. Some key elements of the policy should include:
–The board member’s or staff person’s name and the date.
–The board member’s or staff person’s position (officer title, or other reference).
–An easily understandable definition of the conflict-of-interest policy for the organization and the board member’s or staff person’s signed acknowledgment of having reviewed the policy and an attestation of no conflict.
–In the event of a conflict, the policy provides opportunity for disclosure and notification to the executive director, board chair, or board committee, and for recusal on the matter.
Many organizations provide their boards with a list of businesses with which they deal. Board member attestations can indicate if they have any financial stake, business, or personal interest in those organizations.
In this type of situation, it is up to individual board members to disclose potential conflicts of interest. The policy describes the process for handling the matter without the board member present. It is the board’s decision or advice from counsel as to whether or not a conflict of interest exists and, if so, what steps should be taken to handle it. Typically, the step taken is to ask the board member not to participate in discussions and or decision- making that could present a conflict of interest.
Note: This is a description of how some organizations handle conflicts of interest. You should consult counsel, the relevant charities oversight organizations, as well as legislation and regulations when drafting a conflict of interest policy. Be sure that your organization’s documents are reviewed annually for conformance with local requirements.
Conflicts of Role
Conflicts of role are similar to conflicts of interest, but they arise when a board member performs multiple roles that are supposed to be independent.
What to Watch For
A typical example is when a board member serves as a volunteer working for the organization in addition to that as a board member. For example, in a library, a board member may assist in shelving books or maintaining a schedule for public meeting rooms. In a community organization, a board member may help to guide walking tours or work in a food pantry operation.
All people who work for or with the organization, whether as staff, volunteers, board members, or contractors and consultants, need to identify their roles when interacting with people inside and outside of the organization. In some organizations, this is managed with ID badges of different colors or shapes, but even the smallest organization needs to identify who people are and what their roles are. Business cards are useful, but people need to know that their role is important in dealing with the public. Particularly with people who have multiple roles, it’s important that they clarify the role in situations where it may matter. “I’m Jesse, a software developer,” are partial identifications. Are you the chief executive, or, when you say that you’re “from” an organization, are you merely describing your physical location at that moment? A software developer who is auditing operations is different from a software developer who is blind-calling a potential client to see about selling services.
Prevention
A way of preventing role conflicts is for board members who work as volunteers to make it clear to everyone that they are volunteering as a member of the public and not as a board member. Having clear policies and protocols for handling complaints and other incidents can help to avoid situations where board members are approached to deal with issues that should be handled according to the protocol.
Working with Management
Typically, an executive director is responsible for selecting the senior staff, and the board is responsible for selecting the executive director. In some cases, the board may interview and ratify appointments of senior staff that are made by the executive director. As is true in any organization, be it nonprofit, governmental, or commercial, clarifying the chain of command and the responsibilities of each participant in hiring decisions is critical to the success of the organization. One piece of advice is agreed upon: clarify these issues before you need to.
What to Watch For
There are times when a specific executive director has responsibilities that another executive director may not have; clarifying those circumstances is essential if the organization, its board, and its executive directors (now and in the future) are to succeed.
From time to time, people try to circumvent the clearly stated protocols that identify how to support transparency and communication as well as protecting whistle-blowers by going outside the protocol.
Having clear rules, guidelines, and procedures can minimize confusion. If the guidelines are clear, it should be obvious when they are being flouted, and that in turn makes it clear to people who can identify when there is a problem.
Prevention
In addition to a clear chain of command, there needs to be a clear and promulgated chain of complaint and redress. This is required by law in some cases, where there must be alternative paths for the affected party to choose.
A common chain of complaint is that issues can move up a ladder of redress so there are multiple opportunities for resolution. They can be moved up the chain of command until they reach the executive director or board. When a board member is serving as a volunteer, people should not take that as an alternative route to conflict resolution.
In a small organization run by volunteers, the board may determine what tasks or jobs are done in what way—that is, by volunteers, employees, or contract workers. (In the case of organizations with union workers, this can be more complicated.)
Some nonprofit organizations are structured so that although many people are employed by the organization, the board itself has a single employee: the executive director. The executive director then hires and fires the others. In other cases, the board hires or at least confirms all senior people (sometimes referred to as the C-suite—the chief executive officer, chief technical officer, and so forth). Another structural issue is whether or not the executive director is a member of the board.
The issue of who is responsible for hiring and firing staff is a matter to discuss with your legal advisors because it can change from place to place and time to time.
Mitigation
Situations where a board and executive director or board and staff are at odds or there is role confusion or conflicts of interest pose significant risk. It is important to watch for the warning signs of discord and miscommunication and closely monitor conflicts.
Managing Credentials and Performance Appraisals
Although the executive director is in charge of the operations and staff, the board shares responsibility for many functions, including budgeting, investments, policy making, executive compensation decisions, real estate transactions, and other oversight activities. Where standards must be enforced for everything from zoning laws to financial management and employment practices, it is the board that has governance responsibility and the executive director who has management responsibility.
In order to fulfill conditions of some grants, contracts, and operating licenses, it is necessary to verify that certifications and credentials are valid and current. For performance appraisals, the standards are basically the same as in commercial organizations. Boards set executive compensation and are required to conduct an annual performance review. Some jurisdictions, like New York State, regulate the details of these processes. With nonprofits, both the credentialing process and the performance appraisals may take different forms. When volunteers are involved, standards may be different than they are for employees or consultants. It is the responsibility of the board and executive director to know what the requirements are and to ensure that the organization is in compliance.
What to Watch For
One important thing for a board to watch for in the process of managing performance appraisals is timeliness. Tracking the status of credential and appraisal dates is an expected part of board oversight. Many jurisdictions now require boards to do salary and comparability studies among peer organizations before awarding raises or bonuses to executive directors.
Significant tardiness in conducting annual appraisals can be a red flag. The best way of preventing problems is to keep appraisals up to date (and, from the beginning, having a clear schedule of expiration and renewal dates.
Tip: As in commercial organizations, it is critical to look at performance appraisals as basic management tools that can be of use to everyone. Smart nonprofits provide annual performance reviews for all staff and volunteers. This provides an opportunity for professional development, a rationale for any salary increase or change in duties, and a way to assess potential and fit.
Prevention
Clarity around roles and responsibilities, performance expectations and communication is a starting point in reducing risk. Specifically, make certain that the chains of command and redress are clear, job and task descriptions are up-to-date (including those for volunteers, consultants, contractors, and employees), and an ongoing schedule for appraisals is followed.
Tip: One practice from many organizations, both commercial and nonprofit, can be very useful. Make sure that performance appraisals and salary reviews occur at a fixed point in time—perhaps the employee’s anniversary date, or on a fixed calendar cycle.
Summary
Personnel practices are an area of great vulnerability for nonprofit organizations. If you examine risks that have been uncovered in nonprofit organizations, you will find that many of them have a large personnel connection. You can argue about whether the problem is actually a personnel issue, one of not having appropriate protocols and procedures, a case of not following existing protocols and procedures or some combination of these and other matters, but personnel activities loom large in many known nonprofit organization risk problems.
The themes of this chapter and of effective risk avoidance are to know what is going on, to be certain that everyone knows the rules, and to be as open as possible.