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

We examine how nonprofit, public, and for-profit establishments 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 provision 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, independence 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 prediction from agency theory and also consistent with a view that public and nonprofit organizations are more concerned with the well-being of their employees.