It’s hardly a secret that the nonprofit sector has long underinvested in its most valuable assets—its people. Over the last decade, the problem has gotten worse, not better. In fact, the annual average total support for nonprofit talent fell from 1.4 percent of total grant dollars in 1992 to 0.8 percent in 2011.
But we predict that the tide will finally begin to turn in 2017. This is the year when talent will become a top priority for nonprofits and their funders. Why? It’s fairly safe to assume that the changing political climate and new administration will put future investments in social programs and services at risk. As a result, the demands placed on nonprofit organizations could increase while financial support and government funding decreases. This year, nonprofits and their supporters are going be forced to recognize that if they hope to effectively address the needs of their communities and advance their missions, they must have creative, capable teams in place who can find ways to deliver results under difficult circumstances. Talent—qualified, well-resourced talent—is the answer to many of the challenges the sector will likely face in 2017.
But a growing emphasis on talent investment is only one of the trends that should shape your nonprofit’s approach to talent management in the year ahead. Trends like the changing demographics of the workforce and the growing ineffectiveness of performance management systems have the potential to permanently reshape your organization’s strategy this year. Here’s what to watch for and how to get ahead of the curve.
Younger, more diverse leaders have become a force for change
Workforce demographics are shifting. In 2014, the millennial segment of the U.S. labor force surpassed the Baby Boomer segment, and in 2015, millennials overcame Gen Xers to become the largest generation in the workforce. This group continues to grow in both size and influence.
In the corporate sector, this means more young people are taking up leadership roles and becoming a force for change. Deloitte’s Global Human Capital Trends report points to the recent emergence of a “new organization,” that has been greatly affected by millennial leaders. As millennials step into leadership roles, the report explains, they bring an expectation of purposeful work, ongoing learning and a strong focus on diversity, equity and inclusion that permeates entire organizations.
But the nonprofit sector lags behind in this space. Nonprofit HR’s Talent Management Priorities Survey (slated for release in March 2017) found that 42 percent of nonprofits rank attracting and hiring diverse talent—including millennials, people of color, staff over the age of 50, LGBT staff and individuals living with disabilities—as their top talent acquisition priority for 2017. The fact that many organizations are prioritizing diversity is a positive first step, but the reality is that leadership roles in the nonprofit sector—particularly those in the largest of nonprofits—remain dominated by older, Caucasian men. There is a tension between where the workforce is going and where the sector currently stands.
We predict that 2017 will be the year when nonprofits follow the example of private sector companies and social enterprises and begin to empower younger, more diverse leaders to actually lead. This shift won’t be a reaction to the myth that the for-profit sector is somehow smarter or more strategic than the social sector, but rather a forced change in response to growing competition for funding, support and talent. Many nonprofits are quickly realizing that if they don’t evolve their people practices in response to shifting demographics and competitive dynamics, they put their missions at risk.
To keep pace with the emergence of the “new organization” and drive for better impact, outcomes and results, take steps like these at your nonprofit:
- Evolve your organization’s structure to make more room for new leaders to emerge. As this Harvard Business Review article about the Second Chance Programme illustrates, there is significant room for nonprofits to evolve toward a flatter organizational structure (which millennials tend to prefer and organizational leaders have found to be more effective) to maximize performance. Ask yourself: what can our organization do to become less hierarchical and create more opportunities for emerging leaders to take ownership and participate in decision-making?
- Make diversity, equity and inclusion integral parts of your organization’s culture and talent management strategy. Both prospective and current employees are growing more concerned with workplace diversity each year. This is especially true among millennials, who tend to place a strong emphasis on authenticity around diversity. In fact, over half of millennial employees surveyed in a recent pwc study said that while their companies talk about diversity, they did not feel that opportunities were equal for all. Ask yourself: are we truly living the values we espouse when it comes to diversity, equity and inclusion? How have we made it a priority and how does it align with our organization’s strategy?
- Focus on talent development, not just workplace training. Emerging leaders and high potentials don’t become leaders in a vacuum. They learn by doing. And yet, many organizations don’t see the value in investing in talent or are afraid to take a risk and give their millennial staff the type of ownership opportunities and support they need to develop true leadership and other workplace skills. Ask yourself: what can we do to make our talent and leadership development efforts less about “teaching” and more about mentoring, coaching and collaborating through real world experience?
Performance management systems are evolving and improving
Organizations of all types are recognizing the limited effectiveness of traditional performance management systems. The nonprofit sector is no exception. Some 39 percent of respondents to our 2017 Nonprofit Talent Management Priorities Survey ranked restructuring existing performance management systems and programs as their top performance management priority for 2017. Quantum shifts are on the horizon in this area for the nonprofit sector in 2017.
As a recent report from McKinsey highlights, the evolution toward more skilled work that requires “deeper expertise, more independent judgment and better problem-solving skills” is a driving force behind the transformation of performance management. And, in many instances, it is motivating organizations to completely rethink how they evaluate employee outputs, how they tie performance to compensation and how—and when—they deliver feedback. For most organizations, restructuring performance management systems and programs begins with eliminating the structured annual review and replacing it with a system for delivering feedback on an ongoing basis.
We’ve already seen this trend begin to take hold among several of our nonprofit clients. A national trade association with a staff of 70 and a fairly traditional management structure, heard from their staff in a series of feedback exercises, including an employee engagement survey, that their performance review process was ineffective and burdensome. In response, senior management made the decision to engage a group of staff to re-engineer the process from an event-driven approach to one where regular feedback was key. The organization also incorporated bi-directional feedback which empowered non-management staff to have important conversations about their individual professional development needs with their immediate supervisors. The association took an even more important step by adding the ability to effectively coach staff as a supervisory competency to be measured. While this organization did not make a wholesale shift to the now popular continuous feedback model, their evolving performance management system is a step in the right direction. Each organization should evaluate their internal performance management practices and make needed change a high priority.
So how can you determine whether it is time to transform your organization’s approach to performance management? Here are several signs:
- Your current performance management system doesn’t provide meaningful insight into your organization’s overall performance or where gaps in individual performance exist.
- Your organization uses its performance management process to determine compensation, but can’t effectively and significantly distinguish high performers from low performers.
- Your system provides feedback in a way that makes it difficult for employees to make meaningful adjustments in real time.
Underinvestment in talent is beginning to be seen as a true risk.
There is no single party to blame for the chronic underinvestment in nonprofit talent we mentioned earlier. It can in part, however, be attributed to a misaligned supply and demand relationship between nonprofits and their funders. As Fund the People’s Rusty Stahl explains: “Funders rarely craft their funding to intentionally invest in the recruitment, retention, compensation, development, or retirement of a grantee’s people. In fact, the signals grantmakers send often encourage nonprofits to deemphasize staff development and stress programs and projects instead. With most nonprofits trained not to ask for investments in talent, the demand is kept artificially low. This keeps talent issues off most funders’ radar, starting the cycle all over.”
But this year, we expect to see both supply and demand for talent investments increase. Thought leaders in the nonprofit talent space are becoming increasingly vocal about this need and the most progressive funders are beginning to take notice. The open-ended responses to our 2017 Talent Management Priorities Survey indicate that organizations are starting to see talent underinvestment as a true risk. This theme emerged repeatedly when respondents talked about their biggest hurdles in the area of talent:
- The CFO is concerned about the financial output of developing our employees, but what happens if we don’t?
- If we had more funding, we could hire stronger candidates.
- [The primary obstacle in realizing our talent priorities is] budget or funding issues for more training, development and benefits.
Yet simply viewing talent underinvestment as a risk is not enough. This year more than ever, we must put strategies, systems and processes in place that make resources available for the attraction, development and retention of nonprofit talent.
We need to start by breaking the vicious cycle. Nonprofit leaders must ask their donors and funders for the talent investments their organizations require to be successful. At the same time, members of the funding community must recognize the issues and causes they support can be significantly compromised by a failure to appropriately allocate resources for talent. Nonprofit executives must also see the need for and value of investing in talent. Much like they wouldn’t imagine under-resourcing the fundraising and programs functions, they must also prioritize talent. Equally important, resources must be re-allocated and approaches must be shifted to allow organizations to align their human resources strategy with their organizational strategy and make appropriate investments in talent needed to foster impact and sustainability.
Given the other trends we see for 2017, an appropriate investment in talent must encompass the full spectrum of talent management. That’s a big objective, so consider these steps first:
- Evaluate budgets for recruiting, salaries and rewards. Are they in line with what others in your space have allocated? Do these budgets facilitate the attraction, development and retention of staff needed to do the work of the organization?
- Make an investment in understanding the impact and effectiveness of your employer brand. Are you having important conversations about how your organization is positioned in the job market and what you are communicating about your value proposition as an employer? Is your messaging attracting the type and quality talent that you need to drive the work of your organization forward?
- Allocate funds for professional development. Go beyond leadership development to encourage and support learning at all levels and using multiple platforms including but not limited to job shadowing, mentoring, coaching, and shared leadership models. Talent development should not be seen solely as an expense, but also an investment.
- Don’t be afraid of walking away from your current performance management system, especially if it doesn’t allow you to measure performance. Instead invest in performance management systems that track and drive individual and organization performance. Establish more effective means of communicating feedback on an ongoing basis, and consider de-coupling compensation decisions from the performance management process, particularly if your budget doesn’t allow you to differentiate varying levels of performance in a meaningful way.
As talent investments improve, so too will the nonprofit sector’s ability to lead in the face of the many changes and challenges that lie ahead in 2017 and beyond. What are you doing today to transform your organization’s approach to talent management now and in the future?