About This Article
Small nonprofit and charity organizations often face complex decisions about how to structure compensation, especially when building teams across different locations or hiring remote workers. Understanding the key approaches to location-based pay and salary band structures can help you develop a fair, sustainable compensation strategy.
Key compensation philosophies
Organizations typically choose from three main approaches when determining how location impacts pay:
Location-agnostic compensation (equal pay for equal work):
Everyone in the same role receives the same salary regardless of where they live.
Advantages: Simplest to administer and communicate. Promotes strong equity perception among team members. Easiest approach for pay transparency compliance. Works well for small teams and organizations based in high-wage markets.
Disadvantages: Can be significantly more expensive if benchmarked to high-wage areas. May create resentment if employees in low-cost areas feel colleagues have higher purchasing power. Less sustainable as organizations scale.
Location-based tiers:
Salaries are adjusted based on geographic zones or regions, typically reflecting local market rates.
Advantages: Balances cost efficiency with market competitiveness. Reflects actual local talent market conditions. Allows access to talent in expensive markets while maintaining budget sustainability.
Disadvantages: More complex to administer and requires regular review. Can create equity concerns if not communicated well. Needs clear policy on what happens when employees relocate.
Cost of living adjustments:
Compensation is adjusted to maintain equivalent purchasing power across locations.
Advantages: Maintains similar lifestyle quality for all employees regardless of location. Philosophically appeals to fairness principles.
Disadvantages: Most complex to manage consistently. Ongoing debate about whether to use cost of living or cost of labor as the benchmark. Requires access to reliable regional cost data.
Each approach has merit. Your choice should align with your organization's values, budget constraints, and growth plans. Many organizations find location-based tiers offer the best balance of fairness and sustainability as they grow.
Understanding salary bands
Salary bands are compensation ranges (rather than fixed amounts) that provide structure for pay decisions within job levels or grades.
How bands work: A typical band covers a range from entry-level to highly experienced performance in a given role. Research suggests bands often span from 75-80% of market rate for entry-level positions to 120-125% for highly experienced staff, with solid performers at the market midpoint.
Creating effective bands: Evaluate positions based on role requirements, not the specific person filling them. Research market rates using legitimate salary surveys appropriate for your organization's size, revenue, and mission area. Build your structure around these benchmarks. Group similar roles into grades or levels to simplify administration.
Maintenance: Review bands every 1-3 years to ensure they remain competitive and fair. Document your methodology clearly. Analyze your compensation data regularly to ensure no discriminatory patterns exist.
Important considerations
Transparency is essential: Document your compensation philosophy and communicate it clearly to staff and candidates. Explain how salary decisions are made. Many employees care more about perceived fairness than absolute amounts.
Apply policies consistently: Whatever approach you choose, apply it uniformly across the organization to avoid equity concerns and potential legal issues.
Legal compliance matters: Be aware of pay transparency laws in your jurisdictions. Ensure compliance with anti-discrimination requirements. Note that employee vs. contractor classification affects compensation obligations differently—contractors are generally paid project rates while employees receive structured salaries with benefits.
Use reliable data sources: Base decisions on authoritative salary surveys and market data relevant to the nonprofit sector and your organization's size and location.
International considerations: Organizations with global teams face additional complexity around benefits, employment law compliance, and currency fluctuations. Consider consulting specialists for international compensation structures.
Tools and resources
Compensation benchmarking:
- GuideStar Nonprofit Compensation Report - IRS-based compensation data for nonprofit positions
- Salary.com - Market salary data and compensation tools
- PayScale - Salary benchmarking and market data
Geographic adjustment calculators:
Further guidance:
- The GitLab Handbook Compensation Calculator
- Leading Edge: Salary Bands Guide - Detailed guide for nonprofits on creating salary bands
- How we approach charity staff pay and benefits at Giving What We Can