Hiring a Compensation Consultant: 7 Steps for Nonprofits

Your nonprofit organization might find that it needs some outside guidance around compensation for any number of reasons. Lowering turnover, strengthening your recruitment strategies, and conducting custom sector surveys are all common reasons for nonprofits to hire a compensation consultant.

In a more general sense, compensation consulting services can help growing nonprofit organizations scale up their compensation strategies in ways that are sustainable and help to structure their continued growth.

For these organizations, hiring a nonprofit compensation consultant is the best choice. These professionals have a deeper understanding of the forces and pressures at play in the nonprofit sector. We’ve written before about the essentials of nonprofit employee compensation, so in this post, we’ll be covering what to do once you’ve decided to hire a consultant. Here’s what we’ll cover:

• Steps for hiring a compensation consultant
• Nonprofit compensation consulting services FAQ
• Preparing to work with a compensation consultant

Compensation strategies can have huge impacts on your nonprofit’s ability to attract, retain, and develop key talent, so bringing in an outside guide can be a very smart move. Take steps to find the perfect partner for your organization, and you’ll be on your way to stronger compensation strategies in no time.

Steps for Hiring a Compensation Consultant

Let’s dive right into the steps you should follow to hire a nonprofit compensation consultant. Your exact hiring process will vary depending on your organization and its situation, but your team should use these as a general outline of best practices:

1. Review your organization’s needs.

The main idea at this first stage is to define a focused scope of services. Begin by identifying why your organization needs compensation strategy support. Do you need help addressing an immediate or urgent issue? Are you taking the opportunity to develop a long-term compensation strategy? Clearly define the issues or concerns that you have around your current strategy.

Next, have your team list out your organization’s goals for working with a consultant, sorting them into ‘immediate’ and ‘long-term’ categories. 

Refine your list as much as possible, ranking and ordering your priorities. Avoid listing any redundant goals, and don’t highly prioritize those that are irrelevant to the most pressing changes you want to be implemented. Taking the time to focus your scope now will save your organization time and resources once your consultant is on board, and it’ll help them to get up and running on developing your new strategies quickly.

2. Discuss with your nonprofit’s board.

If you’re a board member, executive director, or human resources manager at your nonprofit, it’s important to get your leadership on the same page about hiring a compensation consultant before beginning the hiring process. This will help prevent any confusion, wasted time, or considerable pushback down the line.

Start by reviewing your list of goals or scope of services compiled in the first step. Your main objective at this stage should be ensuring everyone’s goals are aligned and that the whole leadership team understands the need for outside support.

In addition, you’ll probably want to work with your nonprofit’s leadership team to establish a selection committee to handle the research and comparison process. Then, assign each of the members with specific roles throughout the process.

3. Outline some key guidelines, like a general budget and timeframe.

Next, begin to determine a few key guidelines for your engagement with a compensation consultant. These should include:

• A general budget or maximum cost your nonprofit will pay for compensation consultation
• A target start date for your consultation services
• A general timeframe for your engagement, either an end date or target duration

Determining these guidelines early will be helpful in keeping the process more focused from the start. Plus, it gives your candidates some specifics to build their proposals around. However, remember to keep your process somewhat flexible.

For example, determining a maximum amount of money you’re able to devote to compensation consulting is a good idea, but there’s no need to outline highly-detailed budgets until you’ve seen the solutions that your candidates propose.

Reviewing the proposals from your top candidates later will be the most useful time to begin determining specifics and negotiating details.

4. Begin your research.

Review a few core concepts of employee compensation with your team. Conduct some research online or by talking with colleagues in other organizations. Check out our whole Compensation 101  series of articles to get started. The idea is to give yourself and your team a shared vocabulary and understanding of your particular situation.

This will help your whole team understand the specific issues that your consultant later identifies in your current strategies. Plus, it’ll also help your team more effectively advocate for your organization’s goals and priorities in your new strategy.

After that, it’s time to start researching potential compensation consultants. There are two main resources you’ll probably use to identify possible partners:

• Recommendations from colleagues in other organizations
• Online lists or directories of top compensation consulting firms

The most important thing to look for in a compensation consultant, though, is relevant experience. Their references should include organizations of a similar size and mission whenever possible. More generally, they should definitely have experience working with nonprofits. Nonprofit operations are subject to a unique set of pressures that lead to complex compensation contexts uncommon in for-profit environments.

Look, too, for consultants who take a more holistic approach to compensation than just analyzing numbers. Compensation takes multiple forms, especially for nonprofits-as-employers.

5. Draft your nonprofit’s RFP.

Work with your team to draft a request for proposal for compensation consulting. The purpose of your RFP is to communicate your organization’s exact situation, needs, and goals for working with a compensation consultant. Asking for proposals in a fully standardized way will really let the differences between each candidate’s strategies stand out.

The length of your RFP will vary depending on a number of factors, but there are a few essential elements that it should include in order to yield the best results. Let’s walk through how most organizations structure their RFPs:

RFP Template for Nonprofit Compensation Consultant

• An overview of your organization, briefly describing your history, mission, and donor base.
• A description of your compensation needs, or the scope of services you identified earlier, with additional information added as needed to provide context.
• The guidelines (general budget and timeframe) your team has already determined.
• Expected outcomes or goals for the engagement, and a list of concrete deliverables.
• Questions and requests for additional information, background, and approach to compensation of the consultant or consultant team.
• Additional information or questions as needed.

The main idea is to give your candidates a concise overview of your needs that lets them propose a strategy for addressing them. A more focused RFP without excessive or irrelevant questions will generally get the most creative and efficient proposals.

Work with your team to draft an RFP, then present it to your board for final approval.

6. Compare your candidates, and reach out to your top picks.

Next, work with your team to compile a shortlist of top candidates based on your research. Have each team member rank their top potential consultants, and then compare your rankings. Chances are, one or more frontrunners will emerge. Start your list with those frontrunners, and then determine if there are any additional candidates who might fit the bill.

The number of compensation consultants on your shortlist of top candidates will vary, but once you’ve narrowed down your picks and have a finalized RFP, you should begin reaching out to them. Introduce yourself and submit your RFP. Provide a preferred way for them to get back in touch, set a date by which you’ll plan on making a decision, and offer to answer any additional questions the consultant might have as they develop a strategy for your organization.

7. Review the proposals, and make your pick.

As your team begins to receive proposals from compensation consultants, take a deliberate and organized approach to reviewing them.

Have your team members each read through the proposals. It might also be useful to work together to create summaries that recap the main takeaways, distinguishing characteristics, and adherence to your required guidelines of each proposal your receive. Use a ranking system similar to the one you used in Step 6 to compare the proposals. One will probably stick out as a best choice, but don’t be afraid to reach back out to ask for clarification or additional information from the consultants.

Once your team reaches a consensus, it’s time to notify your new compensation consultant and start discussing details!

Nonprofit Compensation Consulting Services FAQ

If your organization has never worked with a consultant before, it can be tricky to find your bearings once you decide to hire one. Take some time to review the basics of nonprofit compensation and compensation consulting services more generally before your team starts to research possible candidates.

We’ll answer a few common questions:

What do compensation consultants do for nonprofits?

Compensation consultants offer a fairly wide range of services to organizations of all sectors. For nonprofit organizations, these services typically include:

• Overall compensation strategy development
• Executive compensation strategy development
• Conducting benchmark surveys
• Reviewing existing compensation plans
• Creating or updating incentive or variable compensation plans

Many compensation consultants will have experience in other aspects of nonprofit operations, like nonprofit human resources.

Why hire a compensation consultant?

There are a number of reasons why your organization might need some extra support in the area of compensation.

Most commonly, growing nonprofit organizations are looking to develop their first overarching compensation strategy, or they’re taking an opportunity to make needed updates to their compensation structures. These big-picture tasks are usually targeted towards addressing a more specific goal like reducing turnover or improving recruitment.

In terms of the benefits, there are some important reasons why it’s usually a smart idea to bring in an expert rather than try to tackle it in-house. Consider these benefits of hiring a compensation consultant:

• A consultant can offer a more measured, objective view of the state of your organization’s compensation strategies.
• Working with a number of different organizations and situations gives consultants a fuller bank of experience to draw from.
• Compensation plays a major role in your organization’s growth, so the stakes are fairly high; the cost of failing at developing your own strategy could be quite serious.
• A compensation consultant’s job is to focus solely on the issue at hand, so they’re able to work more efficiently than your own busy team.

One benefit will probably outweigh the others depending on why you’re looking for compensation support. An outside expert saves you time, energy, focus, and potentially a lot of money in the long-run.

When should you hire a compensation consultant?

Hire a compensation consultant for your nonprofit when your strategy is in need of an update.

Ideally, this will be well before you experience any type of retention, recruitment, or financial crisis. Bringing in an expert early to develop a professional strategy for your nonprofit will help to prevent issues like these from cropping up in the first place. It pays to stay on top of your internal operations because you’ll be able to better identify when it’s time to make changes sooner rather than later.

A good example of working proactively to make strategy updates might be taking the opportunity of an upcoming executive retirement to refresh your approach to compensation and human resources management.

Still, many nonprofits hire compensation consultants to help solve and prevent specific issues they’re experiencing at that time.

These might include unexpected staffing or financial issues that need immediate attention. In these cases, a compensation consultant can help develop a strategy and set new short- and long-term priorities for your organization.

Look for consultants who can address your current issue, document the new strategies, and train your HR or other internal teams on how to execute them in the long-term. Take the opportunity to build out a roadmap that encompasses more aspects of your internal operations than just the initial issue.

Taking a big-picture view, the best time to hire a compensation consultant is when your nonprofit is experiencing considerable growth. 

Small to mid-sized nonprofits can especially benefit from compensation consulting. A comprehensive compensation strategy can essentially serve as a blueprint for growth, preventing your organization from losing focus, time, or money down the road.

Taking the time earlier in the life of your organization to develop a compensation blueprint will help ensure that your nonprofit grows in more sustainable ways, preventing major compensation issues from arising in the future.

Preparing to Work with a Compensation Consultant

Finally, let’s walk through a few best practices for working with a nonprofit compensation consultant once you’ve secured their services.

Remember, any consultant should act as a partner for your organization. They need to take the time to get to know your unique perspective and mission before finalizing their strategy recommendations. One-size-fits-all solutions are very rarely your best bet, especially when it comes to something as important as your nonprofit’s compensation strategy.

Your consultant should understand compensation as more than just money moving through accounts, and so should your team. Study up on modern approaches to nonprofit employee compensation before diving into your engagement. This will result in the most effective, flexible, and sustainable strategies down the line.

Ask for documentation and training whenever you need it. Your compensation consultant’s goal is to help solve your compensation challenges now and in the future. Make sure you’ll have everything you need to succeed before they wrap up and leave. For example, your HR and payroll departments should definitely be looped into any changes that directly affect how they operate.

Resources for Getting Started

Ready to get started finding your nonprofit’s next partner? Continue your research and start identifying next steps with these additional resources:

• Choose a Nonprofit Human Resources Consultant: A Quick Guide. Looking for more guidance on how to hire a consultant? Check out this step-by-step guide focused on HR.
• Salary History in 2019. Unsure of how to incorporate salary history into your recruitment strategies? Learn what you can, can’t, and should do with our guide.
• Good Reasons to Share Compensation Information with Employees. Compensation transparency can help improve engagement, communication, and retention in organizations.