Corporations exist to generate a profit and maximize shareholder value. Nonprofit organizations, on the other hand, are not driven by profit — they exist to support a mission or cause. Nonprofit organizations have less capital, lower budgets, and limited resources compared to their for-profit peers.

For an HR leader, this can present challenges across the talent lifecycle: in recruiting, hiring, and retention.

Nonprofit HR, a Washington, DC-based HR consulting firm, surveyed more than 350 non-profit leaders and HR professionals in their 2018 Nonprofit Talent Management Priorities report. The report sought to discover the top talent management concerns of the nonprofit sector.

The report found that limited funding presents obstacles to nonprofits. According to the report, “Nonprofits of all sizes cite limited sources as a primary talent obstacle. Smaller nonprofits indicate that limited capacity and funding are obstacles, while larger organizations are more likely to note dysfunctional or unengaged leadership as their primary obstacle to realizing their talent priorities.”

HR leaders at nonprofit organizations face a number of differences from their peers at for-profit companies. Let’s consider two key differences.

Difference: compensation and variable pay

For incentive programs that supplement employees’ base salaries, for-profit companies have many options: fixed bonuses, variable pay based on company or individual performance, stock options, equity, and sales incentives (e.g. trips to a high-end resort for members of the “President’s Club”).

Non-profit organizations, however, have fewer options for variable pay and incentives. In a SHRM article titled “Managing Employee Relations in the Nonprofit World,” Marie LaMarche, employee/labor relations manager for Harrison Medical Center, is quoted as saying.

“The major difference that I have discovered is that at the for-profit company I worked for, managers and above had incentive pay in the form of a bonus, and a large percentage of the bonus was based on the company making operating cash flow targets.”

Employees understand that overall pay will be lower at most nonprofits. For many, that pay is secondary to supporting the nonprofit’s mission. Employees discover a calling and join the nonprofit to support that calling.

While nonprofits may supplement employees’ incomes with bonuses and variable pay, they’re less likely to be tied to organizational performance or effectiveness.

In the same SHRM article, Chana Anderson, director of human resources for Jewish Home San Francisco, notes, “Performance standards for employees are often communicated verbally and not set out in written communication goals. Additionally, departmental and individual goals are not always tied back to the organizational goals for the year.”

Similarly, for-profit companies are quick to terminate campaigns and programs that don’t generate business results. For example, a new product that doesn’t meet first-year sales forecasts may cause the company to withdraw it from the market. A new initiative from a nonprofit, on the other hand, may continue indefinitely, despite meager or unfavorable results.

HR leaders at nonprofits ought to assess the morale of employees working on such longstanding yet low-performing programs, since those employees may be at higher risk for turnover.

Difference: fewer resources

With fewer resources available, employees at nonprofits have to be as scrappy as possible. They’re mindful of maximizing yield and minimizing waste. Instead of hiring a vendor to perform a service, nonprofit employees will try to solve the problem in-house.

According to Kevin M. Horan, vice president of human resources for TechnoServe Inc., “Everything you do, from putting a policy in place to granting vacation time to setting a salary, is done remembering that you are spending other people’s money. This isn’t money that the organization is generating for itself. This is money people have given us to go out and do good with.”

Difference: employees vs. volunteers

Human resources at for-profit companies focuses on a range of different talent categories: full-time employees (both on-site and partly or fully remote), part-time employees, contractors, consultants, and interns. At nonprofit organizations, HR focuses on the same set of workers, but has an additional resource to manage: volunteers.

Nonprofits look to volunteers to handle essential elements of running the organization: fundraising, administration, management, and advocacy.

HR often has the responsibility of training and onboarding volunteers. Since volunteers are not paid employees, HR must apply a different set of guidelines and procedures in managing them.

HR at nonprofits: the way forward

First, the good news.

Research shows that compared to Baby Boomers and Generation X, Millennials and Gen Z have a stronger interest in working for and supporting organizations with a positive mission, especially one that aligns with their own.

In a SHRM article titled “Nonprofits Should Emulate Corporate Recruiting to Compete for Talent,” Paul D’Arcy, senior vice president at Indeed says, “For this reason, we’ve seen a growing interest in not-for-profit work and many businesses increasingly emphasizing the social purpose of their mission.”

These trends align well for nonprofit organizations. But there’s also another side to the coin.

According to the 2017 Nonprofit Employment Practices Survey from Nonprofit HR, 64% of nonprofits do not have a formal recruitment strategy, and 70% do not have a formal recruitment budget. The survey notes that 81% of nonprofits do not even have a formal retention strategy, while only 33% use an applicant tracking system or candidate relationship management platform.

With statistics like these, it’s no wonder that nonprofits face greater challenges in hiring and retention compared to for-profit companies.

In the same SHRM article, Lisa Brown Alexander, president and CEO of Nonprofit HR says, “Less than 1% of nonprofit funding has historically gone toward supporting talent. Show your leadership, board, and funders this data and discuss what you can do together to begin to drive change.”

A good place to begin the way forward? For your nonprofit to invest heavily in talent acquisition and retention strategies. Allocate sufficient budget and resources to compete with for-profit companies in attracting the right talent.