The Willingness to Work (for Less) in the Nonprofit Sector
February 22, 2009
The past few weeks have been *quite* eventful. Responsibility at work is picking up, Twitter is fast becoming an addiction, and meeting other people in this sector has been a lot of fun (everyone I have met has so many unique insights!). And my blogging has suffered for it. To be honest though, I think my blogging is going to pick up a little after this (I’ve improved my workflow via Things for the iPhone) and for the past few weeks I’ve been taking my time in thinking through a very complicated and personal issue: nonprofit compensation.
A few months ago, I wrote two blog-length comments on the topic of compensation in this sector. (Sean Stannard-Stockton mentioned this NYTimes article and posted a review on his blog of Dan Pallotta’s new book Uncharitable and lots of people commented). Since then, others around the blogosphere have chimed in on the debate while Uncharitable has become a popular topic of conversation among many nonprofit circles.
I have a confession to make.
I’ve been struggling with the issue of compensation.
I want to be paid more and I think I deserve to be paid more. I have worked very hard, studied very hard, and know that even in this recessionary environment, I could be making 1.5x the salary I make now doing similar things in the private sector (and if I went to law school, it could be 4x the amount). I don’t want to worry about whether I can save money to buy a house one day, whether I can afford acupuncture treatments for repetitive stress injuries that aren’t covered by my insurance, or whether I can afford personal indulgences like salads at the local Seller’s Market for lunch or a meal at a nice restaurant with friends. I don’t want to cause my mom to worry about my financial future or feel guilty that my parents spent over $160K on my college education (she calls almost everyday trying to persuade me to go to law school – I leave the messages on voicemail) or to feel like I’m too poor to make investments in my professional development, whether its classes on how to visualize information or books via Amazon Kindle.
On the other hand, I have lots to be grateful for. I have an amazing job where I have the freedom and opportunity to learn, believe in the work of our firm, and feel like my contribution has a direct and potentially significant impact on what happens in philanthropy and the world. As an American, I make much more and have much more than those in developing countries (not to mention the benefit of living in a democracy, a privilege many of us overlook and take for granted). Where others are out of jobs that didn’t pay much more than a few dollars a day (did you know that 20 million of China’s migrant laborers have lost their jobs?), it seems selfish and greedy of me to want more than what I have right now. And part of me feels guilty for wanting more from the fixed (and what may be smaller) charitable pie, because in theory, the more money I earn, the less money there is for programs (which isn’t exactly true – see upcoming analysis).
Originally, I was going to title this post “The (Un)Willingness to Pay in the Nonprofit Sector” and critique the inconsistent allocation of capital within the sector (i.e. the way the sector allocates capital is inconsistent with its purported focus on generating greater impact) and argue that true reform needs to provide better incentives for desired activity (instead of only relying on moral rhetoric on what “ought” to happen).
But midway as I was writing this post, I realized that part of the reason salaries are so low (especially for recent college graduates) is because of how much we’re willing to work for in the nonprofit sector. Consider this quote from a piece The American did on One Acre Fund:
For well-educated college graduates, all-consuming jobs like these, which pay less than manning the counter at Taco Bell but offer meaningful fieldwork, are harder to score than posts at prestigious banks on Wall Street. One staffer told me Youn considered reducing the advertised pay further because he is getting too many strong résumés.
And that’s the sticking point – our salaries are so low because we, and everyone else who works in this sector, are willing to work for less. Are many of us underpaid relative to our productivity and social impact? Yes, absolutely! And while we may gripe about the low pay, we stay in this sector because we’re committed to impact and know that we’ve made the right decision given the situation.
But it’s important to note that while many of us are underpaid relative to our productivity and social impact, some of us are comparatively overpaid. When the median salary for chief executives at the largest charities and foundations is $326,500 (according to this article by the Chronicle of Philanthropy) and the starting salary for entry-level employees is around 25K to 40K, I can’t help but wonder whether organizations would generate more impact paying their executives less and their entry-level employees more (consider, which generates more impact in the following scenario: paying an executive their current salary, or paying an executive 40K less than their current salary and hiring an extra employee or funding a young social entrepreneur).
My point here is not to place blame on the executives – but to respectfully bring up the issue of executive overcompensation, and inefficient allocation of philanthropic resources more generally, for consideration. It’s also important to note that the burden of setting the proper level of executive pay is probably the board’s responsibility (after all, if you were a CEO of a large charity and the board was willing to pay you a lot of money, would you feel obligated to argue for less?).
I mention all of this because I want to say:
- I believe I’m underpaid (when comparing different rates of marginal productivity across the sector) but still work in this sector because I believe it’s the best option for me at the moment to achieve the most impact (risk-adjusted, integrated over my lifetime).
- If and when the day comes, I will accept and be ok with a higher salary proportional to the market rate for marginal impact (after all, I’d like to be able to afford a house and kids and nice things too), but not an amount higher and will continue to be an advocate for those who are underpaid proportional to their impact.
- I think the sector could benefit a lot from realigning financial and non-financial incentives to impact-producing activities, yielding a higher impact per $ spent from a reallocation of existing capital in the philanthropic sector, and that leadership on these issues must come from board members, executives, and affinity groups.
February 22, 2009 at 11:36 pm
Really interesting post, Tony. Do you think reducing executive compensation would decrease the quality of the leaders the nonprofit world is able to attract? That would change the issue from paying the SAME executive $40K less and funding a young social entrepreneur, to sacrificing the quality of the leader to fund the entrepreneur.
In Uncharitable, Dan Pallotta asserts that the compensation offered has a big effect on the quality of the executive a charity is able to attract. I have zero experience in this area, but it seems to me that compensation would be one among many factors driving executive decisions about where to work. What’s your opinion on this?
I have yet to enter the working world, but I’ll be curious to see how my impressions align with yours in the future. Thanks for writing.
February 23, 2009 at 1:15 am
Great question Lauren and thanks for commenting.
The issue you raise is an interesting one. Let us imagine the following scenario to help us in our reasoning. Imagine that you’re sitting on the board of directors for a large foundation and you have three proposals in front of you:
1) You can hire a foundation executive at $500K.
2) You can hire a foundation executive at $460K and spend the $40K on bonuses for entry-level staff that perform exceptionally well.
3) You can hire a foundation executive at $460K and spend the $40K on funding a young social entrepreneur.
It’s reasonable to assume, as you point out, that varying the compensation package from $500K to $460K will have an effect on the performance of the foundation executive, just as it has an effect on the performance of the entry-level foundation employee. The key question here is which effect (the “executive” effect or the “entry-level” effect has more of an impact on the foundation’s performance).
In theory, the difference between $500K and $460K is very small compared to the difference between $40K to $50K. The first is a decrease of 8% whereas the latter is an increase of 25%. When you also consider the effect of diminishing marginal utility, the salary decrease for the executive ($40K) matters less than the salary increase for entry-level employees ($10K x 4 people).
So in comparing option 1) and 2) let us assume that job performance is directly correlated to pay and assume that the base salaries we’re comparing for an executive and an entry-level employee are $460K and $40K (and we’re debating how to allocate an additional $40K). Does an 8.7% increase in executive performance or a 25% increase in employee performance among 4 program staff have more of an impact on foundation performance?
I think the real answer is that it depends on the foundation and the individuals, but my intuition is that as a general rule, it would be the latter – and it would be interesting to see what other people’s intuitions were on the matter. Option 3 isn’t actually a very good option given the current environment (there are significant search costs involved in finding the effective young social entrepreneurs among the ineffective young social entrepreneurs and there are all sorts of biases that keep young social entrepreneurs from succeeding) but I also believe that if there were some kind of social entrepreneurship incubator for young entrepreneurs similar to those that exist in the for-profit world, the impact of funding those individuals would also be greater than the marginal increase in impact from increased executive compensation in the foundation world.
So to quickly summarize, I would say that reducing executive compensation would decrease the quality of the leaders the nonprofit world would be able to attract (or the performance of already existing leaders), but conversely, instituting performance-based incentives for entry-level staff would either attract more qualified individuals and/or increase the output of entry-level staff.
But more importantly, financial compensation isn’t the whole picture. I’m not sure what drives executive decisions about where to work (I haven’t been asked to become a nonprofit executive, haha), but I would guess that the top three factors for potential executives would be 1) location, 2) prestige, 3) resources, and 4) income, in that order. However, the only thing within the board’s control is #3 and #4, which is probably why compensation is such a hot button issue.
February 23, 2009 at 1:24 am
Tony,
You’ve written an interesting post but you must realize that not everyone is like you. Compensation means more to some people – very talented people – than it does to you, and if we were to set policy under the assumption that everyone behaves like you do, then we would, and we do, deprive the great causes of our time of huge pools of talent. I’ll rest my case with what Charlie MacCormack, the head of Save the Children, wrote to Nick Kristoff in response to the New York Time piece:
“… I am convinced that humanitarian organizations such as Save the Children are too far over in the opposite direction — our uncompetitive salaries make it almost impossible for people to develop real careers; our under-investment in staff development hampers performance; and our creaky knowledge management and information systems undermine potential results. And as you noted at the Brookings Conference in Aspen, results-oriented monitoring and evaluation and objective analysis of lessons learned is rarely undertaken. Nevertheless, donors are more than resistant to funding these kinds of activities and consider pie chart ratios to be proxies for organizational quality. These and other pressures really do hamper results.”
Dan Pallotta
February 23, 2009 at 4:00 am
Dan,
Thanks for taking the time to comment. I think we’re both in agreement that compensation is definitely important – but I believe most of the disagreement is compensation for whom? While you argue that compensation is important in attracting talent, mainly executive talent, from the for-profit sector to the nonprofit sector, I am arguing that compensation is more important in building talent and providing incentives for performance among those that start their careers in the nonprofit sector.
It’s funny you mention Charlie MacCormack. I took the liberty of using GuideStar to see how much Charlie MacCormack makes, and in 2007, his total compensation was reported at $304,997. For him to say, “our uncompetitive salaries make it almost impossible for people to develop real careers; our under-investment in staff development hampers performance; and our creaky knowledge management and information systems undermine potential results” seems a bit incongruous and disingenuous because of his executive compensation.
One of the most significant challenges of people developing significant careers in this sector is due to the latter two reasons Charlie mentions – underinvestment in staff development and creaky knowledge management and information systems. While one could argue that the reason why there is an underinvestment in those categories is because of a shortage of total philanthropic capital (which I don’t think is the case), I would argue that a more significant reason is improper allocation of philanthropic and human capital.
If the board of Save the Children paid less to their senior executives and more on staff development and IT, I think they would see a greater philanthropic impact then to continue paying their senior staff so much (unless Charlie would really be that much less productive or would no longer be willing to work for the charity due to a salary decrease). Furthermore, with systems like Google Apps (something I helped our firm adopt that has dramatically improved our knowledge management – just ask any other member of our firm) there is no reason why any large philanthropy should be without a knowledge management system. The reason why most firms haven’t adopted such systems are largely cultural and generational – if you hire a recent tech savvy college grad, knowledge management no longer becomes an issue.
So I agree that compensation (and how philanthropic capital gets allocated) is an issue – but I don’t think the problem is with executive compensation. If you really want to focus on the problem of compensation, the greatest inequalities (and thus, performance increases) will come from those that are undervalued the most.
February 23, 2009 at 6:02 am
Tony,
You are living in a fantasy world if you think $304,997 is a big salary. The median compensation for a Stanford MBA, just ten years out of B-School, at an average age of only 38, is already $400,000. $304,000 would be considered poverty wages for a seasoned CEO in the for-profit sector.
February 24, 2009 at 8:03 am
Dan,
I live in the real world of philanthropy where $304,997 is a huge salary to most of us. And I think there are already lots of *very talented* individuals in the philanthropic sector who would be willing to work for much less than what the median Stanford MBA makes – look at Jacob Harold (Program Officer, Hewlett Foundation), Jessica Jackley Flannery (Kiva.org), and Sam Goldman (d.light) – all Stanford MBAs and all who I imagine will make much less ten years out of b-school than $304,997.
The philanthropic sector would do well to look within its walls to find the leadership talent it needs than to think it needs to compete with the for-profit sector. Anyone from the for-profit sector who thinks he deserves to be paid similar wages in the nonprofit sector doesn’t realize he has to compete with comparably talented individuals who are willing to work for much less.
February 24, 2009 at 7:13 pm
Excerpt from an email conversation I had with someone else in the sector:
I wasn’t trying to criticize Charlie MacCormack too much – after all, he is working in the nonprofit sector and I don’t know him personally – but I think my main issue is with the emphasis on executive compensation comparisons without recognizing there is a much bigger inequality among non-executive staff. It’s like a really good public school complaining about the lack of resources it has to compete with private prep schools without really considering the more significant inequality at poorly performing urban public schools.
February 25, 2009 at 12:00 am
What I find missing in this discussion is where do middle managers fit? I have worked nearly 3 years at an organization after obtaining my masters, I am seen to be rising among the ranks and demonstrating the skills to move up in this organization. Yet, because the pay scale is so low when one enters this non-profit labor force, middle managers all leave for greener pastures. I feel this is the time when the remuneration should try to meet even 70% of market rate.
There is a complete absence of middle management in my organization, as much as executive pay can be an issue, they are in the position of the vision, middle management is where implementation and planning happen. You can pay an ED 300K but without middle managers, you are sending down the vision to a bunch of fresh out of college enthusiastic kids. But with 6-digit student loans, I too am looking for greener more “private” pastures.
February 25, 2009 at 12:46 am
Jules, I completely agree – when I was interviewing at Ashoka my senior year, various people at the organization told me that the lack of middle management was a significant barrier to effective change (everyone an entrepreneur doesn’t really work all that well). And I still remember asking in my phone interview with Sushmita Ghosh, the President Emeritus, what Ashoka’s commitment to information technology was, and got an answer that basically gave me the impression that Ashoka did not believe that IT resources, staff development, or salary were important in its organizational effectiveness. (Interestingly, I think Ashoka tries to rely on its brand reputation to attract candidates for below-market rate, but I think it decreases its effectiveness as an organization as a result). I don’t know if Ashoka has this data, but it would be interesting to see what their turnover rates are like compared to other organizations in the sector.
Hopefully nonprofits aren’t doing a disservice to society in disillusioning potential social sector leaders – and hopefully competitive pressures will cause some nonprofits to pay better wages than others in the war for talent. That way, if you’re stuck at a nonprofit who’s just too old-fashioned and noncompetitive in its salary package, effective nonprofits will look to pay you something higher, but perhaps not as high as market competitive, to keep you from going to the private sector.
February 25, 2009 at 2:23 am
The most crucial insight I’m reading out of your post is the operational-level labor market is undervalued, and I agree.
Here’s what I’d hypothesize is the core problem: it’s in how compensation at the two levels gets defined, in practice. All the arguments for executive compensation seem to center around luring them away from for-profit positions, while operation-level compensation, I suspect, gets anchored around minimal rates because that’s what the majority of nonprofits are incentivized to offer while they’re cash-poor and volunteer-centric. And unlike Silcon Valley startups, they don’t (can’t?) price and source talent from the get-go: often, their funders invest in the cause, not in the organization, and consequently expect the venture to operate lean, rather than invest heavily in its team.
I suspect that the same pressure doesn’t exist for executive-level hires, since there’s an implicit expectation that they’ll justify their compensation by running the organization efficiently. You’ve already hit on the big problem with this argument: why spend so much money bringing in outsiders from industry, when you could grow better talent by attracting those same superb people at the start of their careers?
(BTW–if you want visualization resources, talk to me. I may not be able to swing free conference passes for you, but I can probably hook you up with the major books on the subject, or help you get in touch with people in the field)
February 25, 2009 at 2:32 am
Thanks Jason, I’ll probably call you out on that offer – I predict visualization will explode in the next decade or so (so does McKinsey) and that the philanthropic sector will catch on too (it’s desperately needed and our firm’s going to try to make that jump).
It’s interesting that you think it’s the donors’ expectation that keeps entry and mid-line staff salaries so low. I think you’re right that there is that expectation, but I don’t think it’s an immovable issue. A good executive director would be able to make the case to his funders that he needs money to attract high quality level staff (a great executive director would have data to back that argument up). If the ED made the compensation of his staff (and not his own compensation) a moral issue, I think he would be able to win that argument pretty easily.
The problem is when there is a fixed charitable pie and the ED and the board of directors are making all the decisions. Naturally, who do you think is going to get screwed? Those not involved in the decision-making process. While it’s mitigated by market forces, the tendency of this governance structure will be for ED’s to be relatively overcompensated compared to their staff. Studies have tried to argue that for-profit CEOs are overcompensated because of nepotistic and insular boards and I wouldn’t be surprised if that were true for nonprofits as well.
February 25, 2009 at 2:37 am
A second observation:
Consulting and investment banking justify their compensation by virtue of the volume of capital they’re stewarding: 1% for sound advice on a $500m acquisition is arguably a bargain. The nonprofit sector as a whole provides equivalent knowledge work to ensure your money gets invested wisely, and to build the social infrastructure that’s needed for mobilizing capital. Donors are taking this aspect of nonprofit work for granted, though, and consequently underpricing it in their giving.
What if we could redefine the nonprofit as a service provider rather than just a channel for capital outflow, and ensure that donors recognize the value that the nonprofit itself–not just the cause–creates for society?
February 25, 2009 at 5:09 am
I think you see some of that in the philanthropic sector. Generally, foundation staffs are paid better than nonprofit staffs because they are the money managers (and are the more direct principal-agent). And for the most part, nonprofits are viewed as service providers, where foundations are supposed to choose among them (though it depends on which foundation; there was a mini-debate between Sean Stannard-Stockton and Paul Brest at one point on whether the role of foundations was to pick among existing organizations or to create the organizations and the strategy themselves).
To bring back this discussion to the point at hand, the markets for all of this are very inefficient, which makes the incentives very weak. If we have better measures of or agreement on what constitutes impact, we can create better incentives for organizations to correct inefficiencies (undercompensation for entry- and mid-level, lack of staff development) by promising them extra funding and resources.
February 25, 2009 at 8:11 pm
I’m willing to say that paying $1+ million salaries (e.g. Gordon Gee) in this sector is a sin. And that those salaries have little to do with getting qualified people. Isn’t that the same argument that sustained the outrageous compensation going to for profit CEOS.
I’m also willing to say that the huge bucks paid to many nonprofit CEOS has everything to do with their ability to bring in money and not so much to do with the societal outcomes they produce. When you’ve got college CEOs making mega-bucks but graduating less than 50% of their students in 6 years, how can one justify their enormous salaries.
I’d speculate that a big driver for salary inflation is tangled in the quest to raise more dollars by loading boards with high roller corporate members who lack a philanthropic value system. They come from that for-profit world that has been lavishly rewarding itself regardless of the outcomes of the companies and thus they think little of the belief and spirit of service that gets most of us into this sector.
Fair compensation yes. I happen to think that no nonprofit staff member (and that includes docs) should be paid more than the President of the USA. This IS about service.
February 25, 2009 at 8:24 pm
Thanks Gayle for commenting. I agree wholeheartedly with your analysis and it seems that the question always comes back to a matter of incentives and governance – because of the lack of accountability and lack of focus on outcomes, we have a sector which overpays many of its staff despite the outcomes they generate.
Who do we make the moral argument to? Is it the executives? The board? The donors? Personally, I think the moral argument can be made to all of them and with more competition in the market, executives, boards, and donors who don’t live by their values will not win in the war on talent.
As for comparing nonprofit compensation with the President, I agree with the sentiment but it’s not an easy comparison because the President has a lot of benefits: private jet (Air Force One), cleaning staff (White House staff), corporate housing (White House), security (Secret Service), and assistants galore. All things considered, the limit on nonprofit executive pay would be pretty high after you take into all those benefits. Furthermore, once Obama finishes being President, he’ll be paid even more (which can’t be said of nonprofit executives).
February 26, 2009 at 3:42 am
It’s important in this discussion to distinguish among different segments of the sector. Universities and hospitals are very different than most of the sector, as are the large international development NGOs like Save and the large national foundations. These institutions pay the best and come the closest to having what constitutes a career path within their organizations. We’re far from having a sector that “overpays many of its staff despite outcomes;” most of the sector is vastly underpaid, chief executives included. Many local nonprofits have business leaders on their boards who advocate for thrifty salaries and limited human capital investment in ways they would never do at their own companies.
Yet even those organizations at the top of the sector still don’t compare to their for-profit counterparts. Setting artificial limits is, well, artificial. I agree that executive compensation must be supported by value produced. However, it’s part of the job of any CEO in the sector – whether a university or a local community-based youth program with three employees – to bring in the necessary resources. Keep in mind that even if a university president is making $1+ million, that’s still probably 30% or less than someone in the for-profit sector leading a company with a similar amount of employees, fiscal turnover, and “customers”. That’s still about service.
The point about middle management is well taken. To me, it’s not just about the depressed compensation they might be receiving, but the lack of continual training and growth opportunities to take on added risk and responsibility. Some of that’s because organizations might be too small to have places for them to go. Some of that’s because organizations don’t continue to grow and develop and evolve and experiment, so it’s hard for their employees to do so.
February 26, 2009 at 5:52 am
Tony, thanks for commenting. I agree that artificial limits are not the way to go – and I am sympathetic to your argument that nonprofit executives are underpaid compared to what they could be making – which is why many who are concerned about impact are thinking outside the box and sidestepping the nonprofit issue altogether through social business and mission investing, which in all honesty is probably a more efficient allocation of capital.
I suppose the key question I’m raising is this: If you had $100K as a philanthropist and could choose how to give that money to an organization in order to achieve the highest possible impact, how would you allocate that money? Would you spend it on programs? Executive compensation? Staff compensation? Bonuses? Staff development? Because in the end, it’s not about what’s fair, but what produces more impact.
February 26, 2009 at 6:25 pm
Just because the nonprofit sector is woefully undercapitalized doesn’t mean that social business and mission investing are a more “efficient” allocation of capital. In fact, I would submit that many people are drawn to social enterprise because they don’t want to have to be hyperefficient with very little capital, like most in the sector. My sense is that people are drawn to “social enterprise” because of many factors, primarily about (1) keeping control (2) potential scalability and (3) sustainability. Keep in mind that we know very little about its real impact and potential.
What makes your philanthropist think that s/he knows best what an organization needs and can successfully micro-manage from the outside? When you invest $100K in a for-profit company, do you direct them how to use it? No. You look for a company that you think has potential and good management and let them do what they think is necessary with your capital. The assumptions behind your question highlight one of the primary reasons why the sector is in this position in the first place; capital restrictions – which historically have been primarily programmatic – resource only a slice of the organization and leave it few resources to grow, experiment, and develop its overall capacity, human capital included. On this Dan and I are in complete agreement.
If I had $100K, I’d pick an organization where I believe in management’s potential to achieve significant impact, and let them spend it as they see fit. If I thought I had some value to add with my own expertise, I might eventually join the board – after first being an everyday volunteer so that I could experience directly the challenges that the organization faces in providing high-impact services. In my experience donors tend to overestimate the impact that both their knowledge and their particular sums can have; humility is a great first step in having more strategic impact.
February 26, 2009 at 6:32 pm
Tony,
I hope you guys don’t think I’m advocating on the side of the affluent philanthropists who come in thinking they know everything about how a charity should run. I’m not at all. I’m saying we have to give charity all of the same freedoms we gave to those guys that allowed them to scale their companies to the sizes they have. Also, I worry about all of the people starting social businesses and circumventing the nonprofit sector altogether, because the rules are so dysfunctional. The NPS is where most of the money is. We need to fix the rules and unleash the real power of that money.
February 26, 2009 at 7:24 pm
Don’t get me wrong guys – I’m a believer of philanthropy and the nonprofit sector – there are certain things where philanthropy is the only means of solving problems (I don’t think youth mentorship for example or refugee training is something you can really turn into a business). What I am saying though is that social business and mission investing are undercapitalized compared to what would be an efficient allocation of capital (social impact/$ spent) in the sector. I agree with you Dan that it has its problems, dysfunctional rules and all, but I think there’s a strategic opportunity here if we fix the rules – and there’s a lot more capital available in the capital markets and in foundation endowments than there are grant dollars. We’ll be releasing a report soon as part of the Future Matters project funded by the Ford and Mott Foundations on the http://www.communityphilanthropy.org site pretty soon and would encourage you to read it when it becomes available.
Tony, I totally agree with you on the micromanagement issue; our firm has had to deal with this too in some of our contracts and we think micromanagement is a terrible waste of time and efficiency for the sector and on average, funders and individual donors alike could use a little more humility. The point of my question was not to suggest that philanthropists know how best to spend $100K, but to ask you from a hypothetical perspective, how would you allocate $100K to achieve the most philanthropic impact.
So let me rephrase the question to get both of you to answer what I’m really interested in knowing: How would you spend an additional $100K as an Executive Director (or Board Member)? Would you spend it on yourself? Would you try and attract people from the private sector? And if you did, who would you try and attract: executives, mid-level managers, or young twenty-somethings? My honest belief is that paying non-executive staff more money, investing in staff development, and instituting performance-based incentives would be much more powerful in achieving impact than focusing on executive compensation and attracting talent from the for-profit sector.
February 26, 2009 at 8:57 pm
Tony,
I’d try to use the money almost exactly as you outlined. I would have already attracted great talent via a compelling vision and strategy (pardon the ED hubris) – now I’d use the resources to help them fly. I’d add one component: provide them opportunity to take on more risk and responsibility, and give them the space/resources to try out their own ideas. Succeed or fail, they and the organization would learn a great deal. I agree that this would be a better use than upping exec comp (unless it’s really non-competitive with like organizations) or attracting for-profit folks.
BTW, my comments about social enterprise did not encompass mission investing. On that score, I think it makes total sense for a foundation to use the other 95% of its assets in service to its mission.
February 27, 2009 at 4:58 am
Dan,
My girlfriend just sent me this link from Business Week which contradicts your citation of salary pay:
http://bwnt.businessweek.com/interactive_reports/mba_pay_2009/index.asp?sortCol=est_career_pay&sortOrder=2&pageNum=1&resultNum=100
Could you give the source of your claims?
Tony
February 27, 2009 at 5:49 am
Tony,
The data you’re citing excludes stock options/bonuses. See notes 63 & 64 in chapter 2 of my book and visit : http://www.businessweek.com/magazine/content/03_38/photo_essay/mediantable.htm
February 27, 2009 at 3:58 pm
I suppose my sociological background skews me towards structural explanations. One of the weird things I observe in my own job is that compensation is usually tied to the *argument* one can make for one’s contribution to the bottom line. In that regard, strategy-level executives are able to craft a far clearer case than the line-level worker, if only because their standard unit is the million dollar revenue stream rather than the individual product. Moreover, results at the executive level are the culmination of all line-level contributions.
February 27, 2009 at 4:30 pm
Dan,
You never answered my question in our other conversation about ownership stakes, which you reference here in response to Tony’s inquiry about salary rates. If you really believe that the nonprofit sector should level the compensation playing field with for-profits, how do you envision getting there, since NPs can’t offer stock options and equity?
February 27, 2009 at 5:32 pm
Tony Pipa,
Let me be clear that I don’t advocate that the NPS necessarily level the playing field with the FPS. In some cases, FPS compensation is out of whack with value – cronyism and monopolistic practice leads to people being way overpaid against the value they produce. I am advocating that we stop letting some artificial prohibition on compensation, based on an upside-down “morality” or based on “feelings” to stand in the way of us attracting the right people to the NPS. I am advocating that we allow people to be compensated according to the value they produce, and that we let the NPS compete with the FPS in the market without constraint.
As for the mechanics of how we get there? I’m not particularly attached to anything. Money’s money. So long as it’s tied to value it could be in the form of bonuses.
February 27, 2009 at 6:08 pm
Jason, I would say ability to articulate value and actual contribution of value are not the same thing – e.g. the piece from the NY Times Magazine on Shane Battier.
Tony, if foundations were willing to reward founders of innovative nonprofits with awards (like the MacArthur genius awards), that would serve a similar function to a stock option/equity stake, at least for the employees. Bonuses for compensation upon reaching certain benchmarks would be another similar mechanism.
Dan, thanks for the citation – I actually haven’t had the chance to read your book yet because we don’t have a copy in the office, I’m waiting until Tuesday when I receive my Kindle 2 to download the book. I think we’re pretty much in agreement on the basic principle that compensation should be proportional to impact – it’ll be interesting to see where exactly we agree and disagree.
As for the mechanics issue – that’s the key question. If you can answer that question, you’ll have solved the problem, and part of the problem is really understanding the complexity of the issue. If the philanthropic sector could produce a video like the following to clearly articulate the myriad of challenges regarding compensation and philanthropic capital markets, I think we would have a shot at making a difference.
http://vimeo.com/3261363
March 26, 2009 at 1:18 am
[...] mention of their book as a way to encourage further discussion (it happened to my girlfriend and it happened to me). Nonetheless, it came as a big surprise that organizations like Ashoka (who runs the Youth Venture [...]
April 2, 2009 at 9:42 am
[...] subsidies). While I’m willing to volunteer to keep the project going (in the same way that I’m willing to work for less in the nonprofit sector), it would be nice if someone out there in the philanthropy universe would [...]