This is my most recent column from the Financial Times.
Invest in the best to make an impact
By Sean Stannard-Stockton
Published: June 28, 2008 (link to original FT.com column)
Giving money to charity does not necessarily make the world a better place. Nevertheless, most donors believe that donating qualifies as “doing good”. In fact, the gift of money is only the first step in a chain of events that might achieve the elusive goal of creating social impact.
For-profit investors understand this issue. Making an investment does not guarantee a profit; this comes from what a business does with its capital. A result of the belief that the donation itself produces an impact is the idea that non-profit organizations should spend as little as possible on their infrastructure. We see this belief manifest itself when we hear people complain about charities “wasting money”, when press reports grumble about the high salary of an executive director, or when donors are encouraged to focus on a charity’s overhead expenses as a deciding factor on where to give.
Of course, we have a radically different way of thinking about for-profit entrepreneurs. We celebrate the idea of a few people in a garage, with limited resources, inventing the next big thing. We are enamored of the concept that in dorm rooms at Stanford and Harvard, the next Ebay or Facebook is being developed. Implicit in this ideal is the idea that business profits are a product of brilliant people with creative ideas, figuring out how to be successful.
In both business and non-profit work, the critical factors of success are people, ideas and passion. Everything else is secondary. As a nation of stock market investors, we understand this. We are attracted to investment opportunities because of the people leading the company, the ideas for new products or services, and the way the company seems to throw itself at opportunities and relish the chance to compete.
Google lets its engineers spend a day each week working on whatever project catches their interest, and feeds its employees gourmet food in free cafeterias. Google’s stock is up more than 500 per cent since going public less than four years ago. But can you imagine the outcry if a large non-profit let its employees spend 20 per cent of their time on interesting “side projects” or gave them fancy free meals? Never mind that non-profit employees are shamefully underpaid compared with their for-profit counterparts (certainly no stock options for these “do-gooders”). If a non-profit followed Google’s business practices, donors would flee, the media would write exposés and Congress might even investigate.
What a disgrace.
Americans give more than $300bn a year to charity. It is time we reframe what we expect from the non-profits we fund. Let us ask for more innovation, more creativity, more impact. But as a nation of philanthropists, we can not make this demand without holding up our end of the bargain. We need to expect non-profits to hire the best people, and support our donations being spent on competitive salaries. We need to encourage non-profits to take risks, and understand that risk-takers fail sometimes (even frequently). We need to believe that non-profit leaders know best how to achieve their mission, and just as investors do not tell companies how to spend their investment dollars, make the majority of our donations for general operating support.
Imagine the way we could remake our world if non-profit organizations were backed by investors who encouraged them to hire the best people, to poach employees from Silicon Valley and Wall Street, and to bump shoulders with Fortune 500 recruiters at Ivy League career fairs in the fight for the best talent. Imagine the good we could achieve if landing a job at the United Way or the celebrated Teach for America inspired the same joy that getting a high-tech or investment banking job provokes today.
But that will cost too much! We cannot afford it! How can we possibly pay non-profit employees the same rate as for-profit employees?
Here are the facts. According to the Urban Institute, public charities collected $1,600bn in revenue in 2005 and held $3,400bn in assets. These numbers do not include the more than 800,000 small non-profits that are exempt from reporting.
In reframing our understanding of the non-profit sector, we must recognize that we cannot afford not to hire the best people. Fortunately for us, the non-profit sector is teaming with passionate individuals who are innovative enough to figure out how to do their job in such a backward system. Imagine what could be achieved if we transformed our dysfunctional understanding of charity.
As we face the myriad challenges of the 21st century, we must focus our examination of the social sector on identifying the very best people and organizations. We must champion these leaders and invest heavily in their ability to achieve an impact. Just as businesses turn investment dollars into profit, non-profits turn philanthropic dollars into social impact. It is not enough to simply do good, it is time to start funding the best.
The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.
This is fantastic. Very well said and very well put. I agree that the entire sector needs to hire and fund the best. And when it does, the entire sector will be viewed differently. Well done.
Thanks Sam. I actually find it really strange that as a culture we think that keeping costs down is so important in the nonprofit sector whereas we see being the best so important in the for-profit sector. I hope things evolve over time.
Nice article. I have heard often that inertia is the biggest challenge to growth no matter the endeavor. I think insight like yours will help leaders look at the status quo and start to realize that some of the traditional business practices in the sector have not evolved to meet today’s needs. Be it people or technology, we’re seeing innovative approaches start to make a big difference in staff engagement and constituent relationships. It’s fun to watch and be part of. Keep up the great insight.
I just held a focus group in Calgary on people’s perceptions of charity and philanthropy and what you write came out loud and clear. For those working in the sector getting payed a fair salary is critical (especially in today’s labour market in Alberta). However, for those on the donating side, there seems to be a perception that people that get paid over $60K/year in top level positions are getting paid too much. The dollar figure came out of some research being conducting by a University of Calgary master’s student. So while donors are demanding accountablity and the best people for managing their community investments, their attitudes towards compensation are not aligned with their expectations.
All the best,
Gena, do you have any sense of why the donors wanted to keep salaries down?
Tad, thanks for the nice comments.
Everything to do with managing overhead costs. My understanding of donors’ perceptions is that they believe that people choose to work in the non-profit/charitable sector knowing full well that they won’t ever be compensated for their value.
I would equate it with teaching. Someone does not enter the teaching profession thinking they are going to make a lot of money. They go in for several other value-based reasons before financial compensation even hits the list.
Looking back on my career as a professional fundraiser (15 yrs) I think I have raised somewhere between $30-$40 million. Not bad… If I were in the corporate world and had generated that kind of revenue I can only imagine what my financial compensation would look like. I went into the non-profit sector because the work that I do aligns directly with the type of world I am trying to create. I could easily sell out to the energy sector and use my skills to make a lot more money, but I am not sure that I would be satisfied with my life. I guess I am feeding into the donor’s perceptions… hmmm…
Do you think that those same donors think that our education system is better because teachers are paid so little? That this financial “efficiency” translates to better educational outcomes for students?
In every other walk of life we think that quality goods and services cost more. But somehow in the nonprofit sector we think that paying less is better. It is like we think nonprofits do not create any value, but are just brokers taking a pound of flesh for every dollar we try and give “to the cause” (as if “the cause” can take the money and magically get better).
Thanks for the feedback Gena.
While reading this I couldn’t help but think how curious it is that just as “corporate social responsibility” and “creative capitalism” are becoming en vogue, the non-profit world is striving to compete more aggressively for talent with the business world. More than anything, your article made it all the more obvious to me that in order to succeed non-profits are going to behave more like businesses. Likewise, for many businesses to shed the public image that they only care about the bottom line they need to begin behaving more like non-profits (in the sense that they have a non-monetary purpose as well). These are interesting times and your article gives me hope that we will find both the business and non-profit worlds moving closer to the center so that they can both be of as great benefit to the world as possible.
Brendan, that’s an interesting point that corporations are behaving “more like nonprofits”. I hadn’t heard it put that way, but you’re spot on. We are definitely seeing a blurring of the traditional boundaries.
I agree with your assessment, but I know that many people hate the idea that nonprofits should “act more like businesses”. But I would put forth that I’m advocating nonprofits and donors to just act with more common sense. If you are hiring a babysitter, do you want the “low cost provider”? If you are buying a life jacket, do you want the cheapest one? “Low cost” does not mean “better value”.
Sean, this is one of the best articles I’ve read that tosses the conventional wisdom of non-profit pay firmly on its backside. I worked in this peculiar world of non-profits for a decade. Now I work with non-profits from the for-profit side and I continue to observe the very same mentalities that limit the power and potential that non-profits represent.
Last week =I wrote a post at Connection Cafe that addresses the role of staff engagement in creating a better organizational environment that drives results. Imagine if non-profits (encouraged by all of us donors) insisted that our donations were also investments to creating a more powerful dynamic where staff is paid well, managed effectively and creatively, and inspired to invest in innovative growth rather than focus on cost-cutting.
Let’s hope this post is a provocative kick-in-the-pants that signals the change that needs to take place in non-profit organizational culture. We donors need to reward those non-profits that invest our money not only in causes but in the very people who can creatively double and triple the returns from these investments.
Sorry…that link should be:
Thanks for sharing Chris. I liked your post.
Hey all – a couple comments…
To the point about babysitters and cheaper not necessarily being better. I don’t think it has anything to do with “cheapness”, rather, it has to do with the value of the service provided. So would I spend $100 on a life jacket that the $10 life jacket could perform without compromise – I would probably go for the lesser cost. When it comes to non-profit salaries, society has determined (for whatever reason) that they value basketball players moreso than the social worker who is mentoring the student who might become a basketball player. Because the sector’s history is rooted in volunteerism (see aritcle that I wrote on OnPhilnthropy.com a few weeks ago) the mindset of what we value from the sector is one that based on volunteer service. Is this realistic? No – we all have mortgages to pay, but until we as a society decide that a someone who works for a charity and has an MBA from Harvard is worth the same as someone who works for Microsoft with an MBA we will consistantly see our staff severly underpayed (again a comparison to what? The only two sectors we can compare salaries to – government and corporate).
2. To the point on education, do donors think that their child’s education suffers because of lack of pay. This is not based on anything other than observation – my clients send their kids to private schools where teacher’s salaries are marginally higher than those of the public system. Do I think that the choice is made on salaries – not at all, it is about the quality of education – specifically on the extra-curricular resources available to the students at the private vs. public schools. If donors and North Americans in general, were honestly concerned about their children’s education we would see more of the charter school programs like the one in the States where the founder was paying his teachers $125K/yr. but only providing them with a classroom and curriculum. They had to come up with the resources that best met the needs of the students. The cream of the crop educators would rise to the $125K challenge, and the others would be sacked. I am not sure how effective this is and only time will tell if others adopt is method of compensation.
Sean, Brendan and Chris – All three of you have made some very valid points. I believe that there is a fundamental shift occuring in North America and it is a tide that “blurring the lines” between sectors. Whether we call it philanthrocapitalism, a value-shift or the emergence of common sense in the sector and human market place, the way we are measuring it is around economics. Perhaps the question that we should be asking is not necessarily how do we monetize social impact, but rather, is there a better way of reporting the value of a social value? If we take the business aspect out of the equation what can we contrast the non-profit/charitable sector to? This whole conversation is about comparisons… Are we in fact, comparing the right two things?
More to ponder…
One more thought – this comes from Community Intelligence (www.communityintelligence.ca). Quoting the following from their research –
“Funders focus on admin. costs. Ci believes that admin costs draw the attention of funders because they are seeking ratios. Admin costs as a percent of revenue is the most familiar ratio, as it is identical to a business operating margin. This attention to admin costs draws criticism from charities and academics who argue that a charity needs a base level of admin to grow, develop and meet clients’ needs. Ci believes that the debate should focus on what is the optimal level of admin costs, rather than pressing charities to eliminate them entirely…”
Kate Behan, the CEO of Ci goes on to say the following about charties and businesses:
“In the business sector, a company is small because it is either new or failes to thrive. These factors produce higher investment risk, creating the valid relationship between a small company and a risky investment… A successful company receives funding from re-investing earnings, and the efficient financial markets reward a company for its superior results [thereby allowing them to expand into new markets]… The non-profit sector is structurally different from the business sector. Firstly a charity is a non-profit. A charity does not generate significant earnings to reinvest in its growth and instead relies on the benevolence of others for funding. Secondly, funding is not tied to good results. This creates a disconnection between a charity’s success and its size… ”
I would add a third point to Kate’s section on charities, that if a charity seeks out new markets they can be perceived as doing mission-drift and in some cases, if they are so far off the mark can have their charitable status revoked (at least in Canada).
I pulled this section of a report out because it speaks to a couple different thoughts that were presented – how we value charities, how we measure their value/worth, donors’ perceptions of charities and how the structural system of the charitable world feeds a cycle of undervaluation.
Now I have to get back to writing the piece for my blog – http://www.dexterityconsulting.ca/blog. I love this conversation though!
This is a great article that I am sharing with all of our 100 Social Venture Partners in Phoenix. As a network of business professionals who personally fund and share our expertise with the nonprofits we invest in– we do see first hand the tremendous challenges nonprofit leaders face. Our model allows us to offer general operating support paired with our partner time and talent?and we have learned a lot over the past nine years. Mr. Stannard- Stockton is right on about a common sense approach between donors and nonprofits. Because our partners are personally involved with the nonprofits that we fund, we have seen a blending of ideas and perspectives that continues to move us (business leaders and non profit leaders) in the right direction. Thanks for a thought provoking article.
I would think that Social Venture Partners would agree philosophically with my point. Thanks for leaving a comment.
Sean….a GREAT article, as usual.
Big thought though, for all who labor in the vineyards of equitable pay.
The most likely scenerio coming down the pike is not nonprofit folks getting paid more, but (as white collar jobs leave the US) more and more folks getting paid less. Maybe…just maybe, our task is to show folks that it’s actually not so bad down here–and that there are many other ways to measure meaning and your worth than how much you make.
Don’t get me wrong–I dig your argument, and would back you up all the way…I’m just trying to be realistic, given the economic rumblings that growing louder everyday.
In the meantime—I don’t think it’s implausible for nonprofits to start to pay folks more. At DCCK, we start everyone at $12 with full bennies and family leave. It’s hard work to come up with that kind of scratch, but we also push donors to understand that’s what it takes. More of us who can need to push back when donors (or politicians) make the flimsy case that we can’t or shouldn’t….but that also speaks to our current “leadership” within the sector.
And that, my Bruther is another op-ed.
Keep it rolling Sean!!!
Robert, whew! that’s a tough argument to sell (pay the for-profit folks less, making money ain’t all its cracked up to be!). I happen to disagree that Americans as a group will be forced to reduce our standard of living do to globalization. The economy might be tough right now, but the economy always cycles.
But that being said, my main point is that common sense suggests that if we pay people less for working in the nonprofit section we 1) will attract lower quality workers and 2) will achieve less good per dollar donated than if we invested in higher salaries.
Great article. Would love to see this happen one day.
P.S. Would love some feedback from you with the link I provided. We just launched a few months ago.
Your last paragraph is an honorable charge to the foundation and nonprofit leaders of the world. If there was a university of philanthropic management, you would be the commencement speaker.
You issue the charge that “just as businesses turn investment dollars into profit, non-profits turn philanthropic dollars into social impact,” and my question is, who is measuring social impact and how are they doing so? Who are the current innovators and what can we learn from them?
The trend is clear: philanthropists want to give to organizations that are maximizing social impact, and performance measures are necessary. Yet it has been surprisingly difficult to find examples of anyone engaging in a systematic approach to collecting data on performance measures. No doubt the financial costs are prohibitive, but aren’t the potential returns worth it?
Our boutique management consulting firm is currently testing a theory that the mission statement of a nonprofit organization, if tangibly fulfilled, would bring not only positive social impact, but also increased funding and recruiting benefits. If I can look at a nonprofit and see data on how it is quantitatively and qualitatively fulfilling its mission statement—which usually includes something about effecting positive change in society—I will want to give financial support or, as a nonprofit professional, work at the organization that is realizing concrete results!
We developed (and are in the constant process of refining) a simple framework to test for measurable outcomes we would expect to see in service beneficiaries if a client was delivering on its mission statement. We’re learning a lot through the process, and it would be interesting to know if anyone else is doing something similar.
Thank you for giving us a great charge to go out and find the answers. And for those seeking the answers, may we work together to find them!
A lot of people are working on impact measurement, but there is a lack of any consensus on what works. Frankly, as much as I would like to see concrete quantitative output data, I tend to think that social good (like lots of other fields, sociology, psychology, literature, etc) is not accurately measurable from a quantitative standpoint. But that doesn’t stop us from seeking out high impact organizations. Even without standard statistical output, we all still know great books, psychological health people and vibrant communities when we see them.
Keep up the your great work!
I gave the wrong URL in my earlier post – the URL is http://www.CharityIntelligence.ca NOT Community Intelligence.
Andrea, this is something that I do for my client as well. I would be happy to share some of the resources that I use in evaluating impact (some of which are posted on my site – http://www.dexterityconsulting.ca).
On the whole, I really agree with your column. I would add a couple of wrinkles (scattershot observations, really).
The first one is probably because I’m young and I/my peers aren’t yet looking at the top jobs, but I’m less concerned about salaries than I am about benefits and being able to hire people into full-time positions. Part of what makes attracting and retaining talent so hard and part of why there are concerns about the leadership pipeline in the sector is that the entry-level jobs pay little and are often part-time. I seem to see, on job boards, an endless stream of entry-level opportunities where you work 20-30 hours a week, at nonprofit hourly rates, and with no benefits. Who can afford to do that? If you have to support yourself (let alone a family), working 30 hours a week with no benefits just won’t do it. You almost have to be a student looking to supplement your income or a secondary household income to take such a job. I’d love to see change in this area.
I also can never decide whether programs like Americorps and even Teach for America work against us publicly on this cause. They tend to suggest that nonprofit/service work is a higher calling and that you discharge your duty with a few years of work. Thus the monetary sacrifice is seen as acceptable, because — after your stint with TFA or Americorps — you can translate the experience into a livable government or private sector salary. Public service is a temporary “life experience” for young people but not a career.
We could, too, get into a more academic argument about the subtle sexism of it. How the predominance of women in a sector (just like in teaching) tends to drive down wages and that there is a stereotype of nonprofit work as secondary incomes that don’t have to support a family.
All of which is to say that I think the forces driving this are complicated, but that we need some real change – especially at the bottom of the totem pole. Just some thoughts.
Very thought provoking article! As a fundraiser for social justice, here is what your article raised for me:
Who are the best people? They aren’t neccessarily the ones at the ivy league career fair- what do they know about working with oppressed communities? I’ve heard countless stories where TFA teachers cry in front of their students because they can’t handle them, or because the experience is not matching their ideals of being a savior to poor black and brown children. Will greater pay make them better teachers? Probably not.
In my opinion, the “best” people are usually the people who already view the typically nonprofit salary as more pay than they ever made working at say, McDonalds. 6 figures is beyond imagination. Making $40,000 at a non profit with health benefits in an environment where they are respected and challenged is a dream job to a lot of people.
Why should nonprofits conform more to the corporate model, when corporations are the main source of the problems non profits were created to solve in the first place?
I would reccommend reading The Revolution Will not be Funded, an anthology by Incite! Women of Color Against Violence.
Great article, and I certainly agree. I asked a few local high-net-worth business leaders and philanthropists why they tend to pay at or above market rates in their businesses, on the belief that better people make for a more successful business, but why they don’t like to donate to non-profits with a high payroll. They didn’t really have an answer, just a sense that these people are playing with other people’s money and it’s hard to justify any outlandish pay. That said, there does seem to be a gray area between market-rate pay and too much. For instance, should the head of a $250MM non-profit be able to make $500k? That’s not outrageous for market rates, and there’s no big upside paydays, but it seems like a lot.
On the other hand, I’m wondering if one reason for this dichotomy is that we both expect and demand non-profit people to have extraordinary passion. And when you have that passion, you tend to put the success of your services ahead of your own salary. If you ran a humane society and loved animals and had a huge passion for the business, you might want to keep your salary as low as possible to save more dogs and cats. And that’s exactly who I’d want running that organization.
–David, San Diego SVP
I agree with much of your post David, but I think you’re asking too much of nonprofit employees. The for-profit markets want passionate employees too, but Google doesn’t tell people that if they love the internet, they should work for cheap wages. Why must people make a choice between using their skills for good vs using them to make money? Shouldn’t our society want to allocate the most monetary benefits to those people that produce the most positive social value? Aligning incentives has proven to be one of the most important ways to get companies to behave in positive ways. If by paying $500k to a superior executive can help your humane society save more animals, are you really going to feel bad about paying the money?
Speaking of “big upside”, would that be so bad? What if the humane society offered a $100k bonus to the executive if they could double the number of animals saved? If they did it, would you really feel like they didn’t earn the money?
I completely agree with you, I think it is very appropriate to pay well and offer bonuses (although they will never participate in an IPO/public-stock-market type payday).
However, my point is that I think the most passionate NFP employees might not take the money. It’s not the donors demanding it of them, it’s them demanding it of themselves. I’m not sure the CEO of our local humane society would take the bonus. I think he’d tell us to put the $100k into building some new dog enclosure or buying kibble. And that’s exactly the passion we want running the organization, as long as financial issues wouldn’t drive him to quit.
–David, San Diego SVP
If the employee feels that way, they can donate the money back. But by not paying it in the first place, the organization is making the decision for them. Plus, if you earn $60k in America, you’re not a mover and shaker, if you make $500k and donate $440k to charity, the media will write news stories about you.
I still agree that passionate employees are best. I’m just not sure that systematically underpaying your employees is a good way to attract passionate people.
Last week I held a focus group on adaptive philanthropy and there was a woman there who works for an organization where the payscale is determined by NEED as opposed to WANT. So the employees determine what they say they need and the balance between what they are paid and the going rate for their job description is pooled. The pooled funds can then be drawn upon for funds to go home and visit family, meet emergency needs, be used towards the collective for entertainment or saved for rainy days that all people encounter at different times in their lives.
What I am hearing in the underlying conversation is that there needs to be a societal shift either towards clearly understanding the difference between Needs and Wants and then supporting the Needs before the Wants. OR recognizing that North American culture and society is based upon consummerism (therefore Wants) and so non-profit organizations should be paying their employees based upon that mindset, whether or not the staff value the pay.
What we are seeing here in the midst of the oil boom and labour shortage of Alberta are companies and charities looking at other ways of compensation aside from pay. What the charitable sector has been doing for a long time because they couldn’t afford to pay the corporate salaries. In fact, (I believe Jim Collins touches on this in his book Good to Great for the Social Sector), businesses could learn a lot from the charities in employee benefit and compensation packages because they have had to be creative in showing value and attracting/retaining employees.
All the best,
A follow up to the question that your firm is looking to answer: “Does moving to a model that emphasizes community impact increase funding?”
The answer at United Way of America is YES!
United Way of America has been leading a charge for the roughly 1300 United Ways in the US to move from a community chest business model to a community impact model. Instead of taking corporate workplace campaign money and directing it to good organizations, United Way is now in the business of trying to identify the problem, create a theory of change and strategies around a solution, and measure impact.
Not all 1300 United Ways are shifting their business models, and so we have data on organizations that have chosen to implement a community impact model, and those who have not. Those who have chosen community impact raise 10-20 percent more than those who have not when compared to a common starting points.
I hope this provides evidence that moving to an impact model is supplying the product (impact) that the market (donors) want, adds value, and so increases revenue.