Promotions and Incentives in Nonprofit and for-Profit Organizations

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 that potentially explains the broad pattern of evidence they uncover, based on the idea that nonprofit workers are more intrinsically motivated (attracted to their work for reasons transcending material compensation) than are for-profit workers.