Closing the Nonprofit Compensation Gap with a Total Rewards Strategy

Charitable organizations operate under a structural constraint most employers do not face: Funder and donor scrutiny of administrative overhead limits what they can offer in salary. Most operating budgets simply were not built to support competitive wages, and there is rarely flexibility when salaries fall behind market average. This creates competition in the nonprofit workforce as employees may seek out other work opportunities with higher wages. In fact, 60% of nonprofit, government and education leaders now name nonprofit employee retention as their toughest challenge heading into 2026.¹

Nonprofit turnover runs close to 19%, well above the roughly 12% seen across other sectors. Replacing a single employee can cost between 33% and 200% of their annual salary once recruiting, onboarding and lost productivity are factored in.² Rising healthcare costs add another layer of pressure, as organizations faced a 10% increase in 2026, among the steepest jumps in years.³ When rising costs cannot be offset by budget increases or shifted to employees, the gap between what staff need and what the organization can offer will continue to widen.

The opportunity hiding in total rewards

Nonprofits that look past salary alone and build total rewards strategies that connect pay, benefits and perks into a single, deliberate approach will have a better chance of winning the talent battle. Many nonprofits already strive to offer adequate nonprofit employee benefits; the gap is usually in how those benefits are structured, personalized and communicated. Nonprofits offering tailored benefits strategies see retention rates roughly 33% higher than those with standard, one-size-fits-all offerings.⁴

A nonprofit’s mission is also an asset that belongs inside that strategy. Conveying how an employee’s daily work contributes to a larger cause, consistently and across every communication channel, can be as much a retention tool as a benefits upgrade.

Building a nonprofit total rewards strategy that closes the gap

Nonprofits should focus on a few specific moves to gain traction:

• Personalize benefits around real needs — A HUB Workforce Persona Analysis™ of employee demographics can reveal what staff value, allowing organizations to tailor existing benefits rather than add new costs.
• Diversify funding sources — A human capital endowment, built through donor and corporate partnerships, creates a dedicated reserve for wages and benefits, delivering a sustainable boost that does not depend on annual budget cycles.
• Expand health plan flexibility — Individual Coverage Health Reimbursement Arrangements (ICHRA), medical expense reimbursement plans (MERP) and minimum essential coverage options can lower costs while preserving meaningful coverage, particularly for organizations with part-time or variable-hour staff.
• Strengthen retirement plan design — 403(b) plan features like immediate eligibility, generous employer contributions and full vesting from day one rank among the strongest retention tools nonprofits can offer. Nonqualified 457(b) plans can further strengthen compensation for executive and management-level staff.
• Add a triple-tax-advantage tool — Health savings accounts paired with high-deductible plans give employees a way to cover costs now and build savings for later.
• Modernize communication — Delivering benefits information in the right format and through the right channel matters as much as the offering itself.

None of these actions require a major budget increase, but each requires intentional strategy and a willingness to offer what already exists in a way that resonates with today’s workforce. A total rewards strategy built for long-term nonprofit workforce sustainability protects what nonprofits cannot easily replace: an experienced, mission-aligned team.

Connect with HUB International’s nonprofit and employee benefits specialists to learn more about building a total rewards strategy that supports your workforce.

¹Wipfli, "State of Nonprofit, Government and Education 2026 Research Report," November 18, 2025.
²Mission Edge, "Talent, Burnout, and Retention: The Defining Challenge of the Nonprofit Workforce," March 23, 2026.
³International Foundation of Employee Benefit Plans (IFEBP), “Employers Project 10% Rise in Health Care Costs for 2026,” August 14, 2025.
⁴BambooHR, "5 HR Trends for Nonprofits in 2025," September 12, 2025.