Are bonuses ever ok in global development work?

In the global development community, especially within nongovernmental organizations, it is uncommon to pay bonuses. It is often frowned upon, especially when it comes in bloated forms. For instance, last year, International Relief and Development was suspended from receiving federal funding from the U.S. Agency for International Development. Although the suspension was later overturned, the exposed lavish salaries and bonuses that IRD paid its executives raised the legal and ethical question of whether or not bonuses should be paid. Devex talked with experts in human resource management to get their views on this issue. Why some NGOs don’t pay bonuses Lack of funds is one reason why some nonprofit organizations and development agencies do not pay bonuses. A source at the United Nations Population Fund explained to Devex, “We currently do not do salary bonuses in our work as we are under a bit of a financial crunch.” Some other organizations have entirely ruled it out of their compensation and benefits package for reasons beyond the monetary. “We don't pay bonuses,” Kathleen Downes, director of total rewards at Management Sciences for Health, wrote in an email to Devex, citing it as an uncommon benchmark within the NGO community. Like MSH, Cultivating New Frontiers in Agriculture — a global organization that works to empower rural communities through agricultural development programs — has no bonus structure in its remuneration package, and there is no intent to create one. “Bonuses are not truly an incentive for rewarding stellar performance,” said Tony Butler-Sims, senior director for global human resource and administration at CNFA. Butler-Sims explained in an email to Devex that most people join the nonprofit sector “to be focused on an organization’s specific mission instead of being motivated purely by financial gain.” “The current market benchmark is that this is uncommon within the NGO community to offer a bonus program,” Downes said. Birches Group, a company that advises multilateral, bilateral, government and NGOs on how to manage compensation for staff, works with over 300 international organizations around the world. But only 5 percent of these organizations pay bonuses. “Our data shows that it is not a common practice. That may be because, in part, of negative consequence for organizations like IRD when they are discovered to have been doing it,” said Curtis Grund, a senior consultant at Birches Group and practice lead for its international development practice. Grund explained that donor dependent organizations are usually quite careful about how they structure their compensation so that it fits the expectations of funding agencies. “We are aware of a few organizations that have implemented some bonus programs, but typically they are quite modest on the order of 2 percent of base pay,” he told Devex during an interview. This is a small percentage when compared with what is paid by the private sector. “Wall Street private practice would be anywhere from 15 to 50 percent,” Grund said. How NGOs can pay bonuses Paying bonus based on performance could be a good option, but it is often used as an incentive to bring in more business. Butler-Sims said successfully completing a project milestone tied to development indicators would determine who would receive a bonus and how much. Butler-Sims explained, “If a key performance indicator of bringing in over $50 million in new business was the target, then a defined amount in bonus would be paid.” “Although this is a measurable goal, many times organizational milestones or overall achievable targets change dependent on the client forecast or the organization’s strategic plan.” When employees who have no control over these circumstances or changes receive no bonus while their colleagues with more favorable conditions receive one, this could lead to job dissatisfaction for the former, Butler-Sims explained. Juxtaposing his experience in both the bonus-paying organization and the non-bonus paying one, Butler-Sims argued that the global development community, especially nonprofit organizations, should do away with the bonus structure altogether. He said, “Move towards a true pay for performance type model where employees are rewarded through performance evaluations, whether it be annual, semi-annual or quarterly.” Performance based pay practice, if well structured, can increase employee productivity, some experts might argue. In Butler-Sims’ opinion, tying bonus payment on a specific date to overall performance “despite a potential change in client forecast or the organization’s strategic plan” would be a better yardstick for measuring an employee’s reward or bonus payment. “There is a perception that the private sector is productive in part because they put an emphasis on results, outcome, and performance and they achieve those results in part by motivating their employees through financial reward,” said Grund. If paying bonuses can increase employee productivity, then do development organizations need to reconsider its default pushback of the practice? A current trend in the development community is that some donors are moving toward a pay for performance contract. Is this a cue for implementers to follow suit? The challenge here is that since most donors often prefer their funds to go directly to programs rather than overhead, organizations are forced to eliminate bonus payment from the performance-based reward or benefit packages they give to staff. From his experience, Grund explained that leaders of development organizations with a background in the private sector are more open to practices that can improve employee motivation and increase productivity. If these leaders can prove to donors how bonus payments impact the quality of work that they fund, these donors might eventually shift ground for a bonus payment. Donors “tend to be responsive to what they are asked to do by people [NGOs leaders] in those roles,” Grund said. Bonus for one, bonus for all Birches Group works with organizations that are exploring new ways to implement some bonus programs. One of the questions that these organizations often ask is whether all levels of staff would be qualified for the bonus program or only certain levels, Grund said. “In some cases, some organizations will differentiate so that only senior-level staff is eligible.” This type of bonus structure was what Butler-Sims used at the former organization where he worked. But the system did not come without its challenges. First, it was tough to manage. Then, deciding the amount individual staff members received was left to the subjective decisions of the senior management. In most cases, Grund explained, some organizations don’t differentiate so that they will have some bonus or performance for base-pay increment available for all staff.” The rationale for this distinction is to ensure development organizations can uphold their “internal value on equity,” which is unique to the development community. “In addition to external factors mentioned earlier, they don’t think it will be well received for them to offer a bonus to some staff and not to others,” said Grund. This is because all staff members contribute to the mission of the organization even though some are more “motivated by the achievement of the mission rather than financial reward,” he said. Another strategy, Grund suggests, can include designing a reward system where individuals are given in-kind recognition, not necessarily financial, for extraordinary achievement. Donors do not question such rewards. Butler-Sims agreed: “There are other ways to reward stellar performance such as professional development training, career pathing, promotional opportunities with more responsibilities and the like.” Devex delivers cutting-edge insights and analysis to the leaders shaping and innovating the business of development. Make sure you don't miss out. Become a Devex Executive Member today.