Do Nonprofits Treat Their Employees Differently? Incentive Pay and Health Benefits

• Author: David Knoke,Ting Ren,Xinxiang Chen
• Date: 01 March 2014
• DOI: http://doi.org/10.1002/nml.21093
• Published date: 01 March 2014

Do Nonprofits Treat Their

Employees Differently?

Incentive Pay and Health Benefits

Xinxiang Chen,

1

Ting Ren,

2

David Knoke

3

1Mississippi State University, 2Peking University,

3University of Minnesota

We examine how nonprofit, public, and for-profit establish-

ments vary in the provision of health benefits and insurance

and performance-based incentives using the 2002 National

Organization Survey of establishments in the United States. We

found that in comparison to for-profit firms, both nonprofit and

public organizations are less likely to use performance-based

incentives, although they provide their employees with better

health benefits and insurance. Sectoral differences in the provi-

sion of health benefits and insurance and use of performance-

based incentives persist after controlling for correlates of sector

that predict these outcomes, including establishment size, inde-

pendence of establishment, market competition, establishment age,

and unionization. We also found trade-offs between the provision

of health benefits and insurance and use of performance-based

incentives. Our results are generally consistent with the predic-

tion from agency theory and also consistent with a view that

Correspondence to: Xinxiang Chen, Mississippi State University, nSPARC, PO Box

6027, Mississippi State, MS 39762. E-mail: xchen@nsparc.msstate.edu.

We thank Joachim Savelsberg, Jeylan Mortimer, Phyllis Moen, and other partici-

pants at the Eighteenth Annual Meeting of Sociology Research Institute (SRI), De-

partment of Sociology, University of Minnesota, Minneapolis, and the 2009

Academy of Management Annual Meeting at Chicago, for constructive comments.

Chen and Knoke are grateful for support from the 2008 Graduate Research Part-

nership Program Fellowship, University of Minnesota. We also acknowledge the

help of editor Duncan V. Neuhauser and two anonymous reviewers, whose com-

ments, advice, and suggestions proved invaluable for the revision.

NONPROFIT MANAGEMENT & LEADERSHIP, vol. 24, no. 3, Spring 2014 © 2013 Wiley Periodicals, Inc 285

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21093

286 CHEN, REN, KNOKE

Nonprofit Management & Leadership DOI: 10.1002/nml

public and nonprofit organizations are more concerned with

the well-being of their employees.

Keywords: agency theory, health benefits, intrinsic motiva-

tion, ownership, performance-based incentives

SOME SCHOLARS DURING THE past decade have argued that non-

profit and public organizations have converged into patterns

of behavior similar to those of for-profit organizations (Brody

1996; Ramirez and Janiga 2009; Becker, Antuar, and Everett 2011).

They have also debated whether employees receive more concern

for their well-being from nonprofit and public organizations than

from for-profit firms. Conventional wisdom suggests that, because

of the difference in organizational objectives and financial con-

straints, for-profit firms may drive employees harder toward the

maximization of owners’ interests, while nonprofit and public or-

ganizations may care more for their employees because of a

broader social mission that incorporates the interests of employees

as a group of key stakeholders. We investigated the issue empiri-

cally with evidence from the 2002 National Organizations Survey

(NOS) of establishments in the United States and discover support

for the theoretical ground underlying the phenomenon.

We asked the following research questions: What are the differ-

ences in health benefits as non-performance-based and performance-

based incentives among the for-profit, nonprofit, and public sectors?

Do employees of nonprofit and public organizations receive better

health benefits than their counterpart for-profit firms? Are nonprofit

and public organizations less likely to use performance-based ben-

efits than for-profit firms? Answers to these questions have impor-

tant implications for nonprofit managers because understanding

these relationships will keep them informed about the current situ-

ation in managing different types of organizations and therefore will

be helpful in formulating their strategies for managing nonprofit

organizations.

The implementation and effects of performance-based incentives

have been widely explored (for example, Appelbaum, Bailey, Berg,

and Kalleberg 2000; Bowman 2010; Cappelli and Neumark 2001;

Frumkin and Galaskiewicz 2004; Kalleberg, Marsden, Reynolds, and

Knoke 2006; Theuvsen 2004). Performance-based incentives, such

as gain-sharing plans, profit-sharing plans, and pay for learning new

skills, are among the main components of high-performance work

organizations (Kalleberg et al. 2006). Substantial research has also

been conducted on ownership-related differences in the provision of

wages, compensation, and incentives. Some studies have found that,

because of the donation of labor by nonprofit employees (Preston

1989), the selection of intrinsically motivated employees into the