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Salary questions and more no-nonsense answers
Alyce Lee Stansbury, CFRE, Notes on Nonprofits
A trio of reader questions are the focus of this week’s column.
“Can you share anything for the Executive Director to propose a salary increase to the board?”
Hiring, supporting, and evaluating a qualified, capable staff leader is one of the most important responsibilities of a nonprofit board. Compensation and benefits are tools to attract, retain, and recognize an ED for their successful leadership of the organization and accomplishment of priority goals. Here are several suggestions to help guide this discussion:
(1) If one does not already exist, I recommend the board adopt a written process to guide the implementation of an annual review of the ED that includes criteria and benchmarks for awarding increases.
(2) Conduct a salary survey of similar sized or slightly larger organizations to provide relevant data for board members to review when considering a salary increase. Resources to obtain this information include:
- 990’s of like-sized organizations available on Guidestar.org
- Florida Nonprofit Compensation Report from the Florida Nonprofit Alliance. This link is for 2018 and a 2022 report is in progress: https://flnonprofits.org/page/CompensationSurvey
- Local salary surveys are conducted periodically by James Moore, CPAs; United Partners for Human Services; Council on Culture & Arts; and Institute for Nonprofit Innovation and Excellence.
(3) EDs should be prepared to outline their goals for the coming year that warrant an increase rather than basing it solely on past performance.
(4) A close look at the budget is necessary to ensure the organization can afford any increases and sustain them over time.
Here are several resources on executive compensation that may be helpful:
- National Council of Nonprofits: councilofnonprofits.org
- BoardSource: boardsource.org
- CompassPoint: compasspoint.org
The reader attended a presentation where a nonprofit boasted about having less than 5% administrative costs and only 1% fundraising costs.
Their question is, “what is the best way to educate funders and philanthropists about the cost of funding outcomes and how to recognize when a nonprofit is inaccurately describing the true cost of services?”
If these percentages are accurate, this nonprofit could be starving the organization, exploiting their staff, or less likely to deliver quality services. I encourage funders and donors to learn more about the Nonprofit Starvation Cycle at ssir.org.
Claiming low overhead cost as a measure of nonprofit effectiveness is referred to as the “overhead myth”, the misguided but common notion that you can judge the worth and impact of a nonprofit by how much or how little it spends on administrative and fundraising expenses.
Fundraising veteran and colleague Claire Axelrad recently wrote, “Claiming 100% of donations will go directly to your nonprofit’s work and other gimmicks are thoughtless practices, which mislead donors about the holistic nature of nonprofit mission fulfillment.”
This topic is a blast from the past. Author, philanthropist, and activist Dan Pallotta addressed this topic when he spoke in Tallahassee in 2013, about a month after his widely viewed TED talk went viral in which he said, “Our generation does not want its epitaph to read we kept charity overhead low. We want it to read that we changed the world.”
After Pallotta’s remarks, nonprofit watchdogs Charity Navigator, Better Business Bureau’s Wise Giving Alliance and Guidestar joined forces to launch a campaign designed to end the overhead myth which they describe in detail at www.overheadmyth.com.
It is a false premise to separate administrative and fundraising costs from program expenses.
I urge nonprofit leaders to avoid the temptation to minimize overhead costs as an incentive for giving or indicator of greater outcomes. Use the opportunity instead to educate funders and philanthropists that financially supporting programs and related outcomes requires an investment in the staff, facilities, and equipment necessary to deliver them.
If we hire someone with a base salary plus commission, is it legal for a nonprofit to pay a commission on revenue they bring in?
This idea is often suggested by board members who may be accustomed to this practice in the private sector. While paying a fundraiser on commission or a percentage of funds raised may be legal, it is considered unethical by the Association of Fundraising Professionals.
There are three main reasons for this: (1) the charitable mission can become secondary to self-gain; (2) donor trust can be undermined and unalterably damaged; and (3) the incentive for self-dealing may prevail over the donor’s best interests.
Percentage-based compensation can also provide reward without merit. For example, a gift solicited and received in 2022 by the commission-paid person may be the result of collective efforts over months or years by board and former staff members, working to engage and cultivate the donor’s interest in the organization and its charitable mission.
For all these reasons, I do not recommend paying a fundraiser on commission or in any other way that is based on a percentage of funds raised. For more information including ethical ways to compensate fundraising staff, visit afpglobal.org to review the AFP Code of Ethics and Standards of Professional Practice and related white papers.
Thanks for your questions and keep them coming!
Notes on Nonprofits is a column in the Tallahassee Democrat produced by Alyce Lee Stansbury, CFRE, President of Stansbury Consulting, and includes resources, responses to reader questions, guest columns, and timeless topics. This column first appeared on Sunday, May 15, 2022. Please send your comments and questions.