The most valuable asset available to any nonprofit organization is the people behind it. We’ll say it even more specifically: the most valuable asset available to any nonprofit organization is its employees. They are the main resource that helps a nonprofit meet the need and fully realize its mission. This resource is especially vital when we recognize that many organizations are small in scale and highly labor intensive.
With the critical impact that employees have on meeting our missions, it would only seem natural that specific retention strategies would underpin the human resource practices of the nonprofit sector. It’s very easy to find a salary comparison to see what the average salary is for your positions, but not everyone pays attention. Yet surprisingly, a recent survey completed by Nonprofit HR (2021) showed that 80% of over 500 responding organizations admitted that they don’t have formal retention strategies in place. The absence of these strategies shows up in several negative outcomes, for both the organization’s sustainability and the sector as a whole. But having them place makes a positive impact—and we’ll explore how you can get started.
How Lacking a Retention Strategy Impacts an Organization
The first concerning outcome of a lack of retention strategy shows up at the organizational level. Ineffective or nonexistent retention practices directly fuels high employee turnover. An organization without formal retention principles has a higher likelihood of employees leaving the company, which inherently creates a heavy cost to the organization. The cost to replace an employee is estimated at 20% of the exiting employee’s salary. However, it’s worth noting that these costs increase with positions requiring a more specific skill set, such as those at the director or executive level. Plus, these replacement costs can extend far beyond the hire date considering the time for a new employee to grow to full effectiveness.
These replacement costs can be grouped into two primary types: direct and indirect. Items such as severance pay for resigning employees, background verifications, and on-the-job training for new hires fall within the direct cost category. Indirect costs refer to financial impact resulting from lower levels of productivity, costs incurred by new employees as they learn the job, and the loss of institutional knowledge. Additional indirect costs may feel even more familiar than these: the impact of staff shortages on remaining team members is difficult to measure but often presents challenges regarding work-life balance, increased responsibilities, and the general stress incurred from being short-handed.
To put this into focus: a 2018 research study revealed that the average nonprofit employee stays with an organization for 2-5 years. This rapid turn-over rate leaves organizations in a near-constant state of replacing and retraining staff members, incurring ongoing direct and indirect costs. Offering some comfort, however, is the fact that those who stay beyond the 5 year mark typically stay longer than the typical for-profit employee.
Impact on the Sector: Invisible Career Paths & Sector-Switching
At the sector level, we see a ripple effect when there is a lack of specific and effective retention strategies in individual nonprofits. This shows up in two related (but distinct) outcomes: “invisibility” of nonprofit career paths and sector switching. Both show how professional advancement in the nonprofit sector is impacted by a lack of retention strategies.
When we think about professional advancement in any field, we usually understand this to mean that an employee follows a career path that’s made up of a variety of work-related activities that occur over time. All of these then culminate in the ability to take on greater responsibility. These work-related activities include “stretch” assignments, shadowing to gain exposure to new tasks, and completing purposeful professional development. In the ideal scenario, employees understand the paths available to them and actively engage in their pursuit. Team members may also see this career pathing activity as a part of a larger compensation conversation (that includes both financial and non-financial rewards), and ultimately employees experience these to be part of a strong retention strategy. But what happens when it doesn’t work?
Invisible Career Paths
Unfortunately, issues of nonprofit retention—both high turnover and low turnover—often create obstacles to this ideal. The result is an “invisible” career path. In other words, the opportunities that may be available are a mystery to many nonprofit employees.
What does this invisibility of the nonprofit career path mean for the sector? One potential outcome is that prospective employees may overlook the potential that the sector holds as offering a viable career path, given the limited public (and private!) visibility surrounding the opportunities within the industry. This invisible career perception is also shown to influence those already within the industry, through almost all levels of a nonprofit’s structure. In an older study, fifty-five percent of emerging nonprofit leaders noted that they felt the need to leave their organizations to advance their careers.
With this belief in mind—that an employee must leave the current organization in order to advance their career—being so prevalent, where do these employees go next? In many instances, they enter other sectors. One fact from a recent study states that “only 31% of employees within the nonprofit sector have indicated that they would remain at their current workplace if offered a different job elsewhere at the same rate of pay.” This means that almost 70% of nonprofit workers would leave their current position for no increase in salary.
That’s right: over two-thirds of our workforce reported that they would leave their current organization for another opportunity which offers the same rate of pay. Why? Because their current organization is not retaining them.
In fact, nonprofit employees aren’t even compelled to stay within the sector. This issue is especially evident during financially challenging times, such as those caused by the COVID-19 pandemic. A 2017 study found that during times of fiscal turmoil, nonprofit employees are more likely to “sector switch” at a 26% higher rate in comparison to private sector employees. What this means is that during times of an economic crisis, the usual elements that draw an employee to a nonprofit organization (such as mission-driven work or flexible scheduling) are outweighed by the desire for economic stability. This not only leads to employees leaving an organization but also to a higher probability of them entering other sectors that offer similar or slightly better pay.
Don’t Be Alarmed: You Can Start Your Retention Strategy Now
While these data points are alarming, our response as leaders and as a sector need not be alarmist. The pandemic created so many uncertainties, but it also created opportunities to change or start fresh. The nonprofit sector is said to be within a recovery stage from the labor loss. By one estimate, the sector has seen a 62% recovery of the estimated 1.64 million jobs lost during the first three months of the pandemic. Though this is starting to slow down due to variants and ever-changing policies, there is still hope.
That’s right—we can do this. We have the tools and intelligence to respond proactively and sustainably, especially at this dynamic point in time for the economy and the labor market. Here are three places to start.
Make retention practices a publicized priority…today.
It’s imperative that the nonprofit sector focuses on retaining their current employees. How can you make retention practices a priority today? Ask your team for their thoughts on what motivates them to work with your organization. Whether this information is gathered through an online survey or a brainstorming session in person, listen for the themes that emerge from these conversations and what ideas could be acted upon. Conversely, look back on recent staff losses. Why did the employees leave? Where did they go? Are there any patterns to learn from?
Design initial strategies that draw from motivation and maintenance activities.
Motivation-oriented retention strategies are those that recognize and inspire energy. These include recognition programs, formal and consistent support from peers and supervisors, and ongoing training and development. Maintenance retention strategies are the consistent elements of an employment agreement, including pay and reward structures, time off, and bonuses. Both types of strategies are beneficial when thinking about employee retention.
Provide value to your team members with training and development
There is an emerging need for re- or upskilling due to changes in the labor market, so think about investing in training and education for your employees. Early evidence shows this need, and “employer-provided training is often the best way for individuals to get employable skills and for employers to get skilled workers.” The general workforce has experienced notable practical skills loss in the past two years. This same study from August 2021 indicates that nonprofits particularly benefit from offering their own training programs to both retain employees and ensure their teams have the right skills, with significant interest in building up the capacity and skills of their teams in high value programs.
Examining These Retention Strategy Methods
Which of these retention strategy methods has the biggest impact? Numerous studies show that formal training and development opportunities increase job satisfaction and organizational commitment. This leads to employees having a higher likelihood of staying within that organization. They have the opportunity to build their skills in a way that inspires greater ability in their current position, and they also feel elevated self-worth in their organization’s investment in their professional growth.
In its most ambitious form, your nonprofit may opt to fund continuing education for field-specific or nonprofit-management degrees. In a more ready state, and often more economical, are the opportunities to provide access to non-credit professional development opportunities and platforms. The bottom line: use a retention strategy that invests in your team.
Hopefully, this prompts your organization to address the trends in nonprofit employee retention—and specifically the strategic solution we must build and deploy if we want our sector’s workforce to both sustain and improve. Interested to go deeper into this topic? The Nonprofit Help Center will be publishing a whitepaper entitled “Non-Financial Retention Strategies: Keeping Talent By Building It” in December, 2021, available online at www.nonprofithelpcenter.com and on the nonprofit professional development platform, www.meritnonprofit.com.
This spotlighted blog post is courtesy of the Nonprofit Help Center
About Dylan Foden, Contributing Author:
Dylan Foden is a research analyst with the Nonprofit Help Center and is concurrently pursuing his Master of Arts in Organizational Psychology at William James College.