Leadership in the social sector: How to lead when resources are scarce

Few would question that leadership is important to organisations. Leaders set the vision, align people around that vision, and drive change and progress. But is there a difference between leadership in the private sector versus the social sector? While we often think of leadership as universal, in fact research has demonstrated that context is critical to leadership effectiveness. Hence one would expect that leadership in the social sector does not look exactly the same as leadership in the private sector. Of course at the broadest level there are similarities: a clear vision, the ability to communicate, the ability to motivate employees. But when we look at the details of “how”, some differences emerge.

In the private sector, one can motivate employees using incentive systems where a bonus or raise is linked to performance targets. This can result in better performance for certain types of jobs and tasks (although there are limitations to this method, even in the private sector). In the social sector, however, scarce resources usually preclude such incentive systems – and even if such systems were used, they would not necessarily work. Not only might donors question if funds were being used efficiently, but also the employees themselves might not respond to financial incentives as readily as in the private sector.  

People who join a social sector organisation are typically attracted by the mission and type of work rather than the financial compensation, which is often less than in the private sector. Certainly they want to be paid fairly, but money is not the “carrot” that attracted them to the job. Combine this with the fact that social sector organisations have scarce resources anyway, and it becomes clear that leaders need a different strategy for motivating employees in the social sector.

In the private sector, the focus is on extrinsic motivation or the “carrot and stick” method. If employees value the rewards that are being offered, and if they have the resources and ability to improve performance, then this method should theoretically result in better performance.

However, intrinsic motivation is critical for social sector organisations because of the type of employees they attract and the fact they cannot compete with the private sector in terms of compensation. Intrinsic motivation is more subtle and difficult for organisations to manage because it is the employee’s own sense of enjoyment or fulfilment which drives them to improve their performance.

How does an organisation boost intrinsic motivation? Research has found the more employees understand the impact their work has on beneficiaries, the better they perform. In one study, university fundraisers read a story about a student who would have been unable to attend university but for the money they raised. After reading the story, the fundraisers improved their performance, raising significantly more money than fundraisers who did not read the story. Even though the fundraisers had known the money raised would benefit students in this way, putting a face to the beneficiary through the story increased the fundraisers’ feeling of impact, resulting in greater effort.

In addition to purpose and impact, having a sense of control can also boost intrinsic motivation. This is often referred to as a sense of autonomy, but autonomy could be misinterpreted as simply leaving someone alone to do their job, with minimal oversight and support. This type of autonomy does not necessarily lead to better performance. It is perhaps more accurate to call it a sense of control.

In order for employees to feel a sense of control over their work, they must feel they have the resources, support, and guidance necessary while at the same time having the flexibility to manage their work the way they see fit. Control over their work can be divided into four areas: tasks (what they do on a given day), time (when they arrive at and leave the office), team (who they collaborate with), and technique (how they perform their main responsibilities).  The degree of control over each area can vary for different employees, but the way in which such control is granted should be transparent and consistent. For example, working from home one day a week might increase an employee’s productivity – but it could lower everyone else’s productivity if they are denied the same benefit without any explanation.

This leads to another important driver of performance: the perception of fairness or “organisational justice.” This becomes particularly important when resources are scarce. If an employee feels the resources they receive are unfavourable (receiving a lower salary than they feel they deserve), then the process by which such decisions are made and communicated become critical to employee commitment and performance.  For example, employees of an organisation with a transparent and consistent salary structure are likely to feel more fairly treated than employees of an organisation with an opaque structure that rewards certain people arbitrarily.

In addition, employees who are treated with respect and appreciation will feel more fairly treated than those whose managers are rude and inconsiderate. This sense of fair treatment can often offset the effects of being underpaid. In other words, an employee who is underpaid is more likely to stay in the job and perform well if (1) they feel the decision by which their salary was determined was fair and transparent and (2) they are treated with respect and appreciation by their boss.

Leadership is critical to all organisations, and effective leaders are ones who can adjust their behaviour to fit the context. Whereas in the private sector, leaders focus on compensation as a motivator, the scarcity of resources in the social sector requires leaders to adjust their strategy. Instead, they must focus on intrinsic motivation and organisational justice in order to boost employee productivity. Employees who have a sense of purpose, a sense of control over their work, and feel fairly treated will reward the organisation with commitment and high performance.