Posted by: Nathaniel | July 1, 2008

Question of the week: Should nonprofit salaries for middle and upper management mirror those in the for-profit sector?

The Chronicle of Philanthropy’s “Give and Take” blog picked up today on a debate about compensation in the nonprofit sector. The Charlotte Observer recently reported that the president of United Way for the Central Carolinas received a $1.2 million salary and compensation package for the 2007 Fiscal year, including $822,000 in retirement benefits.

While the benefits package included recompense for seven years since 2000 in which the president’s retirement package was not at the appropriate level, the high package has stirred questions of what salary levels are appropriate for nonprofit executives.

The debate has been playing out on the Chronicle’s Philanthropy Today, and one of the comments that gets me is this one:

“With examples like this of outlandish and frivolous use of donor funds, it’s no wonder why some people have lost confidence in the ethical oversight and distribution of philanthropic giving in our culture.”

I don’t believe that nonprofit salaries for executives or middle management have to be (or probably even can be) at exact parity with their for profit equivalents. I do think that the social mission, sense of purpose and additional potential quality of life benefits (not to mention the smaller amount of available capital) will always lead to generally smaller financial remuneration.

That said, the danger in this discussion seems to me not to be debates about specific instances of abuse. The problem is the pernicious mindset that it’s a “frivolous” use of donor funds to recruit and retain the most talented, passionate people available, and invest in continuously improving their abilities to do their jobs.

The mindset that a good nonprofit is any nonprofit that spend less than 10% of their donations on overhead seems well intentioned but completely wrong-headed to me. The point is impact. The point is whether or not you achieve your mission. Dollars, as Jim Collins points out in his “Good to Great: Social Sector monograph” are inputs not outputs for most nonprofits, and therefore a dangerous way to rate the quality of an organization.

I don’t think the nonprofit sector needs salaries at exact parity with the for-profit sector, and I do think the public should be wary of potential abuses and excesses, but I think that we need to more robustly develop and support talent for the nonprofit sector and pay increases have to be a part of that equation.

What do you think?

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Responses

  1. I was thinking about this the other day. I think no. The state of the non-profit sector is in dire straights. A friend of mine told me about a director in her company who runs a large scale nonprofit but who doesn’t like to travel. Excuse me? Why did you choose a line of work that requires frequent trips around the world if you hate traveling? The point is the non-profit sector has become an institution of ‘perpetual problem solving’ with no real end in site. People go into the industry with long term goals spanning twenty years, and expect to retire or return to direct the problems that they should have solved twenty years ago. Instead of clear defined goals, many nonprofits simply get into a routine and repeat a cycle, ad nauseam.

    I’m all for a corporate structure where NGO directors have to manage finite assets (instead of endlessly raising funds to accomplish the same things they raised funds for last time). They’d also have to have clearer results (pass/fail) and deadlines. Accountability to the public should be a given considering it’s the public who raise and contribute money to the various ’causes’ they execute.

    Of course, not all groups suffer from the same problems, but my lies heart is in a more privatized approach altruism and philanthropy.

  2. My intuition largely agrees with yours Nathaniel. Non-profits should be able to offer competitive salaries, but that does not mean offerring identical salaries. Even within the private sector there is a large salary difference between jobs that are aiming to hire from the same talent pool. For instance, banking pays much more than consulting, but in turn has longer hours and a generally lower quality of life. The moral/ethical satisfaction gained from most non-profit jobs would almost certainly mean that a lower salary could be offerred to attract the same caliber of employees as a given private sector job.

    On a related note, I think that other aspects of human resources management are as important as, if not more important than, salary. Flexibility on hiring and start dates, opportunities for training and personal development, some assurance that good work will be rewarded by promotion or increased responsibility, the chance to take sabbatical leave to work on related projects, etc, are all necessary to attract and retain the kind of talent the non-profit sector needs. To my knowledge, the private sector is fairly good at providing all of this, while the non-profit sector (and even worse, the public sector) has a lot of catching up to do. This kind of HR is tough for a small organization to provide, but surely a larger organization like the United Way could (and perhaps already does) offer some of these features that would help it compete with the private sector in attracting the best talent.

  3. This is SUCH a good and important question…thanks for bringing it up!

    Along with several good colleagues/friends, I find myself in the midst of a dilemma like this. For several years now I’ve played a survival game, working hard for close to nothing because I loved my job. But its caught up with me now. I’m older, my priorities are different, and I need more just to survive. Several of my friends in a similar situation have “sold out” to the corporate world…often they were the best workers, the most intelligent, the most efficient, the hardest working. And it has left the nonprofits reeling. Something needs to change!

    What most of us want is to continue doing our old jobs, but we need more money. The nonprofits don’t need to mirror corporate salaries; they just need to “up the ante.” Nonprofits have a lot going for them – high job satisfaction, fulfillment, flexible hours, travel, etc. BUT these can only take a hardworking employee so far. At some point, survival mode isn’t enough. They want to save, they want to live a little, and they want to send their kids to college. Nonprofits need to run more lean. Hire fewer better skilled, more efficient people. Pay them more. Stop investing in just your fundraising staff. Invest in the people who are actually running the programs. Donors will give more to organizations whose programs are better run. That’s my take!

  4. For the last few years, I have been switching back and forth between the non-profit and the private sector (within the int’l human rights field). Rather than the perks of the salaries and benefits, the things I have always comparatively appreciated when working within the private sector are: 1) how smooth hiring, entry, and training goes; and 2) transparency/coherence of organizational policy.

    I agree with Tom that a separate but more important issue I think is that these organizations need to consistently maintain good management practices. Employees who start working with a “save the world” mindset can come across the danger of just willingly going along for the ride thinking “some sacrifices need to made to be for me to be in this field to do good work.” But, in fact, most of these “sacrifices” (ie: incoveniences/frustrations in the workplace) can be avoided if solid organization’s management/human resource policies are in place.

    If these good practices exist, despite the perhaps slightly uncompetitive salary (which ultimately does not differ significantly, esp. for entry-level jobs), the general quality of life should actually be higher than working in the private sector given the higher level of satisfaction given by the job itself.

  5. Thanks everyone for your responses. I think this is a fascinating and really important conversation. Pragzz, your experience from the trenches sounds reflective of a huge number of my friends. Jon (appfrica.org for those who don’t know!), your sense that people get into the industry with a time-frame that’s too long is interesting. Do you people get in with this mindset or is there sort of a “mission creep” or “i want to keep my job and that means my nonprofit needs to keep existing” effect?

    Finally, Mas (by the way, great to hear from you man) and Tom, I think your posts are dead on. One of the things that I’d like to see more of is investment in the professional development of staffers, so that it makes nonprofit employees more capable and confident. The confidence that comes from knowing you have marketable skills would, I believe, make it a lot easier to invest more deeply in a fulfilling but less financially rewarding job.

    What do you guys think are the top three things nonprofits could do to better recruit and retain quality employees?

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  7. “Do you think people get in with this mindset or is there sort of a ‘mission creep’ or ‘i want to keep my job and that means my nonprofit needs to keep existing’ effect?”

    @Nathaniel

    I think it’s the later. To me it seems people get burnt-out because either they didn’t fully think through the things they signed up for. It’s also possible that people truly mean well initially, but internal politics, lack of progress and administrative bureaucracy over time get to them (as is the case with most jobs I suppose).

    I’ll also say that when certain nonprofit groups become BILLION dollar companies with not so much to show for it, people really need to start questioning the facts. I’m glad Google and the Gates Foundation have entered the ‘room’ so to speak. If it’s one thing the private sector understands, it’s results.

    There simply needs to be a higher level of accountability in the non-profit sector with higher ups before the money follows.

  8. This debate is getting interesting. I agree with a lot of the viewpoints here. And here’s some more to consider.

    One of my favorite non-profits that leaves the rest in the dust is “Teach for America” (TfA). TfA does an amazing job of blending non-profit and private sector practices, to create a fairly efficient, high-yield system. Every year, thousands of the most competitive and promising graduates turn down big offers to clog TfA’s HR systems with applications. For two years, they slog away at thankless jobs in inner city schools for a ridiculously low pay. Yet, they keep coming. And not only that, employers and graduate programs can’t seem to get enough of the alums. Why is that??
    Better yet, if you look at their operations, it still remains lean, young, vibrant, and highly skilled. Its quite common for middle and lower management to be filled with alums who decided to lend their skills to the organization for a couple more years. From what I’ve heard, the management gets decent pay (competitive with the better nonprofits), but nothing compared to what they might earn in the corporate world. Yet they stay (for a little bit atleast)…and the reason is that they love their peers, they love the work environment, and they love their chance to contribute. Of course, many of them leave after a couple of years and go on to do fairly well for themselves; and their jobs are quickly taken by freshly minted TfA alums eager to contribute. Its a great system that keeps TfA young, vibrant, and attractive. (From what I hear the Peace Corps had a similar model, but they’ve gotten increasingly moldy over the years and that has changed the whole feel of the organization.)

    I think my point is that TfA proves that providing training, a good job environment, freshness, vibrance, and efficiency can keep a non-profit competitive with the corporate sector even without the salaries. But also only young people can handle this salary. Once their commitments grow, so do their needs and they transition on. Non-profits just need to figure out what they want and how to position themselves.

  9. I think the salary question reflects a deeper structural question. I have worked in small and mid-sized nonprofits as well as in small, mid-sized, and large for-profits. What I’ve noticed in the nonprofits is that rather than cultivating a “professional staff” track, there is an attempt to have all non-managerial work done in positions structured as administrative or support staff.

    This causes a number of problems: In addition to not being paid appropriately, staff get no development of the kind that would save these organizations money in the long run. E.g., it’s cheaper and more effective to find a $80K Webmaster willing to work for $60K in a mission-driven organization than to get a person you can pay $35K and have them maintain the Web site. The most talented people leave not just because of the money (as many have mentioned here) but because they languish. After a while, they begin to realize that the job is not even a good venue for making the most of what they have to give for the cause.

  10. Over the years I have held nonprofit executive management positions. Social problems will always accompany society, there is no way that all social problems can and will be solved. Having said that there are standards of excellence and accountability that nonprofits should adhere to in order to prove their impact to their customers, donors, members, and so forth.

    With these standards ever present in the nonprofit world it makes it essential to nurture top talent into nonprofit executive roles and offer salaries and benefits that are comprable to their skill sets and with in the allotted budget of the organization. It does not make sense to expect nonprofit executives to have top notch education, a serious history of experience, and the myriad of skills it takes to lead impact on today’s social problems without offering some kind of decent compensation.

    In order to foster leadership in the field of nonprofit management organization’s and society will need to offer serious and substantial resources to produce real impact.

  11. Hey, nice tips. I’ll buy a bottle of beer to that man from that forum who told me to visit your blog 🙂


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