Promotions and Incentives in Nonprofit and for-Profit Organizations

Abstract

Abstract[Excerpt] Using data from the 1992-95 Multi-City Study of Urban Inequality, an employer survey, the authors document a new empirical finding that workers are less likely to receive promotions in nonprofit organizations than in for-profit firms. The study also uncovers evidence that wage increases associated with promotion were of comparable magnitudes in the two sectors, as was the potential for within-job wage growth; nonprofits were less likely than for-profits to base promotions on job performance or merit; nonprofits were less likely to use output-contingent incentive contracts to motivate workers; and the observed difference in promotion rates between the nonprofit and for-profit sectors was more pronounced for highskilled than for low-skilled workers. The authors also propose a theory, based on the idea that nonprofit workers are intrinsically motivated to a greater extent than are for-profit workers, that potentially explains the broad pattern of evidence they uncover. Required Publisher StatementCopyright by Cornell University.This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/articles/112 Review, Vol. 60, No. 3 (April 2007). © by Cornell University. 311 A Industrial and Labor Relations0019-7939/00/6003 $01.00 PROMOTIONS AND INCENTIVES IN NONPROFIT AND FOR-PROFIT ORGANIZATIONSJED DEVARO and DANA BROOKSHIRE* Using data from the 1992-95 Multi-City Study of Urban Inequality, an employer survey, the authors document a new empirical finding that workers are less likely to receive promotions in nonprofit organizations than in for-profit firms. The study also uncovers evidence that wage increases associated with promotion were of comparable magnitudes in the two sectors, as was the potential for within-job wage growth; nonprofits were less likely than for-profits to base promotions on job performance or merit; nonprofits were less likely to use output-contingent incentive contracts to motivate workers; and the observed difference in promotion rates between the nonprofit and for-profit sectors was more pronounced for high-skilled than for low-skilled workers. The authors also propose a theory, based on the idea that nonprofit workers are intrinsically motivated to a greater extent than are for-profit workers, that potentially explains the broad pattern of evidence they uncover. *Jed DeVaro is Assistant Professor of Labor Economics in the School of Industrial and Labor Relations atCornell University, and Dana Brookshire is an assistant vice president at Bank of America. The authors are grateful for helpful comments from Francine Blau, Ronald Ehrenberg, Martin Farnham, Limor Golan, Jeffrey Groen, Kevin Hallock, Robert Smith, Michael Waldman, and seminar participants at the Society of Labor Economists Annual Meetings, the NBER Summer Institute, and Wesleyan University. They also thank Jason Roche, David Rosenblum and Robert Sullivan for research assistance.The data used in this study can be downloaded from the ICPSR website. Results that are mentioned but not reported i...

The Role of Gender in Promotion and Pay over a Career

“…Alternatively, sheltered from competition, the public sector may admit of more discrimination in promotion than the private sector and/or may make less use of incentive mechanisms. Although the public sector has been largely neglected in the empirical literature, there is the hint that promotion chances may be lower for females in the public sector and among nonprofits than in the private sector (Cobb-Clark, 2001;Devaro and Brookshire, 2007).…”

Does Organization Ownership Matter? Structure and Performance in For-Profit, Nonprofit and Local Government Nursing Homes

“…They find that NP organizations are less likely to offer promotions, and the promotions that they do offer are less likely to be based on job performance or merit. Furthermore, echoing the findings of Roomkin and Weisbrod (1999) and Bertrand, Hallock and Arnould (2005) for hospital executives, DeVaro and Brookshire (2007) find that NP workers are less likely to receive commissions on sales, bonuses and profit sharing than their FP counterparts. These results are weakly consistent with our results, in that the weak differences between FP on the one hand and NP and LG homes on the other hand, although in the predicted direction, are weaker than those found in other industries most likely because there are few pay-for-performance opportunities in the nursing home environment.…”

“…Some of the motivation may come from employees' intrinsic motivation to do the right job in their occupations and their organizations. It has been argued that NP 11 and LG workers' values are better aligned with those of the organizations in which they work than is the case for FP workers (Francois, 2000;DeVaro and Brookshire, 2007). If this is indeed so, NP and LG organizations will have to invest less in practices that support appropriate decisions than FP firms, but it is extremely unlikely to eliminate the agency problem or even compensate for the agency problems associated with the lack of ownership rights in NP and LG organizations.…”

“…There is very little relevant research on nursing homes and other industries against which we can compare this set of results. One exception is DeVaro and Brookshire (2007), who use an employer survey concerning promotion and incentive practices in FP firms and NP organizations. They find that NP organizations are less likely to offer promotions, and the promotions that they do offer are less likely to be based on job performance or merit.…”

Compensation and Intrinsic Motivation in Nonprofit and For-Profit Organizations

“…The conventional explanation for this result (e.g., Preston 1989, Handy and Katz 1998, DeVaro and Brookshire 2007 is that the compensating differential favoring FPs increases with skill level because the work becomes more closely tied to the organizational mission. Preston (1989, p. 443) writes, "…the further removed the worker is from the generation of social benefits, the less likely he will be to 'donate' his labor at a reduced wage.…”