During the discussions we’ve been having about nonprofit pay (see the 46 comments on this post), I’ve taken the position that employees should be compensated for the “impact” they have on an organization regardless of whether the organization is a nonprofit or a for-profit. I wrote about this last summer in the Financial Times and then again after the book Uncharitable put forth a similar argument. During that time, my core point has been that we should reverse the cultural expectation that nonprofits, donors, the public and the media have regarding nonprofit employees making less than for-profit employees.
In large measure this is a cultural expectation and not a legal requirement. This point was driven home when the IRS recently studied the compensation of top management at nonprofit hospital and found that the average salary of $490,000 was not excessive (under tax laws). They even took a closer look at a group of 20 hospitals were the average compensation for top officials was $1.4 million and found that in more than 85% of the cases, the pay packages were not excessive. But the IRS themselves drove home the cultural expectations of low pay when they said:
“Amounts reported appear high but also appear supported under current law,” the IRS said. “For some, there may be a disconnect between what, as members of the public, they might consider reasonable and what is permitted under the tax law.”
I point to this study not to lend my support to the pay packages at nonprofit hospitals, but to show that the lower pay in the nonprofit sector is mostly a cultural issue and not a legal one.
So one more time: I think nonprofits should pay employees at the rate that maximizes the organizations’ impact. Most all studies show that paying well is one key component of attracting top talent and so I think that donors should be supportive of nonprofits paying well in pursuit of high impact employees.
Now, most of the resistance to my posts on this topic has come from current nonprofit employees.This mostly stems from their feeling that I’m suggesting that the current pay rates imply that current nonprofit employees are not “high impact employees”. That’s just wrong. There are lots of great nonprofit employees. I’m talking about maximizing impact, not dissing the nonprofit sector.
To break the grip that cultural expectations have on us, let’s debate instead whether public school teachers should be paid better. That is not a criticism of teachers, it is statement in support of the importance of teachers! Studies (such as those profiled in the recent Malcolm Gladwell book Outliers – or read a great New Yorker article Gladwell wrote on the topic – as well as cited by Bill Gates in his recent open letter) suggest that the most important determinant in student success is the quality of their teacher, not the quality of the school they attend.
It seems to me to be irrefutable that paying teachers better would help attract more highly talented individuals to the career. That doesn’t mean there are not already lots of great teachers (there are!), but we could still use more and the studies suggest that improving the overall talent pool of teachers is the single most important way we can transform our education system into high impact preparation for our children.
(Yes, I know about the politically delicate discussions currently being held on the topic of merit pay for teachers. But that debate is entirely focused on how to determine which teachers deserve better pay. Everyone in the debate agrees that top teachers should be paid well.)
So my question for readers is: If you have disagreed with me on the issue of better pay in the nonprofit sector, why do teachers but not nonprofit employees deserve better pay? Or alternately, why should we not pay teachers better?
Thanks for raising this point about teachers and impact-based salary. I think, that before we can even look at teacher’s salary based on impact, we have to look at the structure of the entire school system.
Right now, teachers are “strongly advised” to teach to the test because schools recieve their public funds based on the test scores of the students. The lower the test scores the fewer resources put towards that school (kind of ironic, isn’t it).
I spent last semester teaching a 3rd year management students at a local university and they were so under-prepared for critical thought process and analysis. This generation has been taught to ask, “What is on the test?” and teachers telling them to study for “What is on the test.”
I whole-heartedly agree that teachers are underpaid. But I also believe that our society has such a low value placed on education that really, asking for impact based salaries for teachers would not make a difference in our current system, with our current values.
I’d also add to the debate that we need to be more realistic about what it costs nonprofits to deliver quality services — including their costs for quality labor — and be willing to pay those costs.
I’d like to see us get to the point where we ask how much it costs to deliver good quality services in relation to the social benefits they provide, rather than “why does it cost so much?” The answer is because you pay for good work…that’s why.
Funny, we never seem to complain about the cost of new toys for the military…
At some point, I wonder whether improving the nonprofit sector is like trying to make a Hummer more efficient – the nonprofit sector may simply be an inefficient vehicle for change. As Sam Goldman of d.light said in a recent NYTimes piece, the reason he started as a nonprofit instead of a for-profit, it would take him 100 years instead of 5 to see the impact he hopes to generate.
While I too see the need of nonprofits, I think many young, smart people would rather work for for-profit social enterprises rather than nonprofits because of the culture of inefficiency and arbitrary decisionmaking and the inability to build careers (to be perfectly honest, I think the sector sometimes discriminates against its own people as recent executive hires at large foundations and elsewhere look more favorably on for-profit experience rather than nonprofit experience).
So for the time being, I’d rather focus on how we can find more opportunities to generate the same impact using for-profit models rather than thinking about how to fix what might be an inherently inefficient nonprofit sector.
The other day the President had the guts to talk about teacher merit pay – kudos! Not easy and has to be done the right way, but it’s a good idea.
If they can get it approved in their current contract negotiations, DC public schools are going to a new pay-for-performance system they — any teacher can choose NOT to be in their new ?pay for performance? system and stick with the existing tenure-based structure. That pay scale ranges from $40-68,000. If a teacher opts into pay-for-performance (which, of course, means you can also lose your job), the pay range is from $60-130,000.
Thanks Paul. We all know exactly which pay program the most talented teachers will opt for.
I’ve been reading some reports on nonprofit vs. for profit pay and I’ve realized that I have not emphasized enough the distinction between raising pay across the board and structuring pay to attract highly talented employees.
I’m focused on the latter, but I admit that in my writing I have talked more generally about nonprofit pay instead of writing more specifically about structuring pay to attract top talent (which would result in higher pay in general, but is still an important distinction).
Reading: “Do Teachers Deserve to be Paid Well? | Tactical Philanthropy” ( http://tinyurl.com/d9yqje )