Profits and incentive compensation in nonprofit firms

Incentive contracts based on profit sharing, cost reduction, or other measures of performance no longer need to endanger a nonprofit firm's tax exemption; such measures have been urged for adoption in the nonprofit sector. However, the nonprofit differs from the for-profit sector in that contracts have side effects on the solicitation and offering of donations and on the character of those who choose to work in the nonprofit sector. In addition, it is more difficult in the nonprofit sector to obtain an appropriate output measure for use in calculating bonuses.     

Strengthening Social Protection in East Asia,Mukul G. Asher and Fukunari Kimura (Eds.)

Few studies have analyzed for-profit and nonprofit differences in the home health care sector. Using data from the National Home and Hospice Care Survey, we found that patients in nonprofit agencies were more likely to be discharged within 30 days under Medicare cost-based payment compared to patients in for-profit agencies. However, this difference in length of enrollment did not translate into meaningful differences in discharge outcomes between nonprofit and for-profit patients, suggesting that—under a cost-based payment system—nonprofits may behave more efficiently relative to for-profits. These results highlight the importance of organizational and payment factors in the delivery of home health care services.     

Changing Relationships Between Nonprofit and For-profit Human Service Organizations Under the Long-Term Care System in Japan

In Japan, a nonprofit organization system enacted in the late 1990s and the later introduction of privatization policies in human services were expected to overturn government dominance of nonprofit organization activities. By focusing on the long-term care insurance (LTCI) system, which privatized public human services for the first time in the country, this study empirically examines whether, and to what extent, nonprofit–government relationships in Japan have actually changed as a result of this new system. In addition, because LTCI newly allows for-profit organizations to provide services, the influence of such organizations were incorporated into the analysis. The outcomes of this study demonstrate that the government continues to extend its sphere of influence over nonprofit and for-profit organizations through LTCI. In addition, for-profit organizations appear to be more successful than nonprofit organizations, in that the former organizations have overcome their lack of experience as public service providers by taking over the roles that nonprofit organizations have traditionally occupied.     

Executive Compensation in the Nonprofit Sector

An examination of executive compensation in the nonprofit sector indicates that, as in the for-profit sector, the salaries of nonprofit executive directors depend heavily upon the organization's size. Among nonprofits, both ideology and the composition of revenues substantially affect executive compensation levels. The results of this study indicate broad differences across segments of the nonprofit sector and a strong role for ideology in the setting of compensation.     

Nonprofit and for-profit home care in Israel: clients' assessments

Clients' assessments of differences between nonprofit and for-profit organizations delivering home care services to Israel's frail elderly were studied. No significant differences were found between nonprofit and for-profit providers with respect to organizational efficiency; speed of placement and replacement of home care workers; responsiveness to clients' complaints; and supervision of care plans, schedules, and service delivery. Systematic differences were found, however, in clients' perceptions of workers employed by nonprofit versus for-profit service providers. The differences related to the home care workers' adaptation to clients' needs and wants; how well workers delivered services; and how satisfied clients were with the services received. Indications are that the relatively high efficiency of nonprofit organizations can largely be attributed to the performance of their home care workers.     

Nonprofit and For-Profit Home Care in Israel

Clients' assessments of differences between nonprofit and for-profit organizations delivering home care services to Israel's frail elderly were studied. No significant differences were found between nonprofit and for-profit providers with respect to organizational efficiency; speed of placement and replacement of home care workers; responsiveness to clients' complaints; and supervision of care plans, schedules, and service delivery. Systematic differences were found, however, in clients' perceptions of workers employed by nonprofit versus for-profit service providers. The differences related to the home care workers' adaptation to clients' needs and wants; how well workers delivered services; and how satisfied clients were with the services received. Indications are that the relatively high efficiency of nonprofit organizations can largely be attributed to the performance of their home care workers.     

Linking For-Profit and Nonprofit Executive Compensation: Salary Composition and Incentive Structures in the U.S. Hospital Industry

Research concerning executive compensation has a long history. However, most studies have been conducted on publicly traded investor-owned enterprises. Although the not-for-profit sector experienced explosive growth during the 1990s, little work has been devoted to understanding its executive compensation schemes and incentives arrangements. In the United States, recent Federal and State legislation has changed the landscape under which nonprofits must operate to avoid penalties for paying excessive compensation to its executives. Studies of compensation schemes under different organizational arrangements are limited. This paper uses the U.S. hospital industry to link the for-profit and nonprofit compensation and incentive literatures. It highlights selected for-profit executive compensation and incentive processes and suggests how some of these methods could be applied in a nonprofit setting.     

Testing an Economic Model of Nonprofit Growth: Analyzing the Behaviors and Decisions of Nonprofit Organizations,Private Donors,and Governments

This study draws an economic model of the growth of nonprofit organizations by analyzing the behaviors of three major actors—nonprofit organizations, private donors, and governments—in making decisions on the allocation of limited resources for nonprofit services. Since decisions made by each actor affect resource allocation, it is important to understand what drives these decisions. The model was tested using an unbalanced, 463 panel dataset collected from 28 OECD countries over a 23-year period. The results indicated that macro- and micro-economic trends and government policies framed the decision premises of the three major actors, which led them to leverage the supply and demand for goods and services and, in turn, determined how they allocated limited resources for nonprofit services. This result implies that understanding the interdependencies of all sectors of the economy is critical to comprehending the size and development of the nonprofit sector. Effective management of micro-economic policies and macro-economic stability is necessary. More important, however, is understanding how a decision in one part of the economy will have intended and unintended effects on the nonprofit sector.     

Does Public or Not-for-Profit Status Affect the Earnings of Hospital Workers?

This paper examines the earnings differentials among hospital workers in the public, private nonprofit, and private for-profit sectors. Utilizing data from the 1995 through 2007 Current Population Surveys, unadjusted earnings are highest in the private nonprofit sector and lowest in private for-profit firms. Once measurable characteristics are accounted for, health practitioners in for-profit and nonprofit hospitals earn similar wages while public sector workers earn small but significant wage penalties. Nonprofit hospitals tend to attract workers with higher levels of skill as measured by schooling and potential experience. This could be explained in part by worker sorting and lower cost containment incentives in nonprofit hospitals. Wage change analysis using pooled 2-year panels constructed from the CPS indicate no significant differences in earnings between the three sectors of employment. Whatever the role of the sector of employment on the overall earnings of hospital workers, there is sufficient worker mobility within the industry to largely eliminate systematic wage differences across type of hospital.

What Accounts for the Variations in Nonprofit Growth? A Cross-National Panel Study

Previous studies of nonprofit growth have lamented the lack of cross-national longitudinal data measuring the size of the nonprofit sector across countries, which has made it difficult to assess the current state of knowledge about the nonprofit sector beyond national boundaries. Recent progress in measuring nonprofit growth using panel studies or cross-national data has compensated for the limitations of the existing research, but even the recent data are either country specific or cross sectional in nature. This study takes on the challenge of supplementing the current research by measuring nonprofit growth using internationally comparable longitudinal data. Specifically, this study focuses on whether certain key indicators of the overall state of the economy can be used to predict and explain the size of nonprofit sectors cross-nationally. The overall state of the economy has considerable relevance for nonprofit growth, as it influences the levels of government funding and private philanthropy that benefit the nonprofit sector. The results indicate that the existing theories about the nonprofit sector account for variations in nonprofit growth but are limited in their explanations of the underlying dynamics of such variations beyond national boundaries. Social origins theory is a useful addition that helps to explain cross-national variations in nonprofit growth. Importantly, the interplay among the government, private philanthropy, and the nonprofit sector is dynamic, and its effect on economic indicators varies across nonprofit regime types when sociodemographic variables are controlled.     

A Focus on the Program of All-Inclusive Care for the Elderly (PACE)

For over four decades, the Program of All-Inclusive Care for the Elderly (PACE) has been operated by nonprofit organizations. Research has demonstrated that nonprofit PACE provides quality, cost-effective community-based care to older adults who would otherwise require a nursing home level of care. Recently, the U.S. Secretary of the Department of Health and Human Services has authorized for-profit entities to operate PACE, contingent on their ability to demonstrate that they can provide care that is similar to nonprofit PACE with regard to access to care, quality of care, and cost-effectiveness. In 2013, a study was conducted to evaluate how PACE operates under for-profit versus nonprofit status. The results were presented to Congress which, in turn, authorized for-profit PACE providers. This article critiques the 2013 study, offers a comparison to for-profit hospice, and argues that at best there is not enough evidence to conclude that for-profit PACE provides the same quality of care as existing nonprofit operators.     

The Adoption of the Corporate Governance Model by Nonprofit Organizations

This article examines the circumstances under which nonprofit organizations adopt corporate governance practices. In the study reported here, the authors found that adoption of corporate governance practices depends primarily on the presence of a supportive institutional (that is, value) context as well as available resources to support governance restructuring. These findings strongly suggest that the adoption of structures and practices from the for-profit sector is neither a feasible nor even a desirable solution to problems facing many nonprofit organizations.     

The validity of supplementary pay systems in nonprofit organizations

The theory and assumptions used by nonprofit organizations when adopting employee incentive pay systems are examined in this article. A theory to explain the use of financial incentive is described. This theory states that nonprofit employees are motivated, like employees in the for-profit sector, to seek financial rewards contingent on achieving certain performance goals. To validate the Theory, a review of select literature is provided.     

What Influences the Growth of the Chinese Nonprofit Sector: A Prefecture-Level Study

The nonprofit sector in China has experienced unprecedented growth in its scope and impact over the past four decades. Despite the significant growth, the distribution of nonprofit activities across localities is not well understood. This study combines administrative and census data to examine the size of the Chinese nonprofit sector across 334 prefectures. The study demonstrates a significant variation in nonprofit sector size across prefectures. The study further shows that population heterogeneity, government social spending, and government fragmentation have positive effects on boosting nonprofit sector size in a prefecture. Although diverse service needs affect the growth of the Chinese nonprofit sector, government activities play a more important role in mobilizing nonprofit activities and driving nonprofit sector growth.     

Combined Effects: The Influence of Organizational Form and Structural Characteristics on Contract Performance in Mixed Sector Markets

Social service contracting to nongovernmental organizations is popular form of privatization across the world. Although nonprofits are preferable social service providers for legal and normative reasons, governments in the United States increasingly rely on for-profit organizations to deliver social services. This trend warrants further exploration about whether nonprofits or for-profits perform according to theoretical expectations when they exist in the same market. This study employs qualitative comparative analysis (QCA) to examine how sector-public, nonprofit, and for-profit-combines with structural variables to produce acceptable contract performance in juvenile justice programs. QCA is a discovery-oriented research tool that determines whether combinations of variables within cases produce a specific outcome and whether those combinations are consistent across cases. I find sector is not a necessary or sufficient predictor of acceptable performance on its own. Rather it combines with market factors to lead to acceptable contract performance. Combinations vary by sector, indicating that sectors behave differently in similar circumstances. The primary theoretical contribution of this paper is to provide a nuanced account of contract performance in mixed sector markets.     

Achieving Growth and High Quality by Strategic Intent

Can nonprofits simultaneously pursue continuous rapid growth and maintain high-quality delivery of services? This article is the story of the five-year experience of one nonprofit that has attempted to apply the concept of “strategic intent” to its operations in pursuit of this question. The idea of continuous rapid growth seemingly dismisses the possibility of continued high quality. But in a day when expansion of quality services is needed in many segments of the nonprofit sector, the notion of the possibility of rapid growth in services with high quality is of great interest.     

Doing Better While Doing Good: Motivational Aspects of Pay-for-Performance Effectiveness in Nonprofit Organizations

Management practices in the nonprofit sector have been changing over the last decade. Many nonprofit organizations are now mimicking the management techniques of for-profit organizations. Referring to prevailing economic, psychological, and management theories, this paper deals with pay-for-performance plans and specifies reasons for their introduction into nonprofit organizations. The determinants of pay-for-performance effectiveness are analyzed with special emphasis on the motivational determinants. The results of the analysis are incorporated into a model of pay-for-performance effectiveness. Referring to theoretical reasoning as well as empirical studies, this paper analyzes how the motivational determinants of pay-for-performance effectiveness are coined in different types of nonprofit organizations. The paper ends with a discussion in which the author presents an alternative explanation for the introduction of pay-for-performance plans into nonprofit organizations and some suggestions for future research.     

THE NONPROFIT FIRM: A POTENTIAL SOLUTION TO INHERENT MARKET FAILURES

This article analyzes the differences in products offered by nonprofit and for-profit firms in a monopolistically competitive industry where goods are differentiated both by product attributes and by the degree to which benefits are public. Because nonprofit firms receive donations, they provide a Pareto improvement of the equilibrium product set: nonprofit firms will be less biased against goods with a high social good component than will their for-profit counterparts, hi addition, the optimal donations function which equates the nonprofit equilibrium product set to the set which maximizes societal welfare is derived.     

Innovation,Professional Interests,and Nonprofit Organizations: The Case of Health Care in Poland

Nonprofit organizations have a role in spreading technological innovation. The experience in Poland illustrates that entrepreneurial health care professionals prefer nonprofit organizations over for-profit organizations to introduce novel services to the market because nonprofits create favorable public perceptions of those services.     

Child center closures: Does nonprofit status provide a comparative advantage?

Reliable access to dependable, high quality childcare services is a vital concern for large numbers of American families. The childcare industry consists of private nonprofit, private for-profit, and governmental providers that differ along many dimensions, including quality, clientele served, and organizational stability. Nonprofit providers are theorized to provide higher quality services given comparative tax advantages, higher levels of consumer trust, and management by mission driven entrepreneurs. This study examines the influence of ownership structure, defined as nonprofit, for-profit sole proprietors, for-profit companies, and governmental centers, on organizational instability, defined as childcare center closures. Using a cross sectional data set of 15724 childcare licenses in California for 2007, we model the predicted closures of childcare centers as a function of ownership structure as well as center age and capacity. Findings indicate that for small centers (capacity of 30 or less) nonprofits are more likely to close, but for larger centers (capacity 30 +) nonprofits are less likely to close. This suggests that the comparative advantages available for nonprofit organizations may be better utilized by larger centers than by small centers. We consider the implications of our findings for parents, practitioners, and social policy.