Monday, January 12, 2009

Is it a Sacrifice to Work for a Charity?

A friend recommended that I read a new book called Uncharitable. So I followed his advice and, although I disagree with much of what was argued in the book, I am glad I read it. I believe the author, Dan Pallotta, is a very smart guy who has called into question many of the assumptions people have about the charitable sector. Even though I think many of his arguments are wrong, they help us to reevaluate our own assumptions and look at things from a different perspective. On a couple of points at least I think we agree, one of them is that the outcomes of a charity's work should be considered when donors decide on where to make a donation. No disagreement there.

However, in this blog I would like to hone in on another central point of the book where we disagree. As my friend, who agrees with the author on this matter, summarized the point to me -

... taken as a whole, his book sets forth the argument that doing good in the world is not always best served by “sacrifice”... It is this belief that sacrifice equals doing good that creates the mindset that great for-profits might invest heavily in great people, great technology, great infrastructure, but that great nonprofits should do the reverse and keep costs low.
One core focus in the book regarding "investing heavily" revolves around CEO compensation. It is argued that there should be no set upper limit on CEO salaries provided that they provide good outcomes. As I read his argument for this, I kept thinking of a line from an old Jethro Tull song, "I don't believe you, you've got the whole damn thing all wrong..."

To begin with, I refer my readers to the last two blog entries written here - Ten Ebeneezer Charities and Tales of the Dark Side. I believe these entries help chronicle one of the sad stories within the charity world -the tendency of some of those at the top to abuse their power and influence for their own self-interest. The idea of further freeing them to make more money scares me to death. I know that the author says this would not be done willy nilly and would be based on performance, but I have lived and breathed this stuff long enough to know that it would not work that way. If we were to allow charity CEO's to get even higher paying salaries, I believe the abuse of power would only increase. The theoretical argument is nice, but reality tells a very different story.

I understand that Mr. Pallotta believes that, since in his case he was not a thief like those we described in the earlier blogs, he should not be penalized. However, it gets to the core question of why people do this work. I do not see it as a sacrifice to get a salary that pays less than in the for profit sector. If that is what I wanted, I would've have chosen a different career path. I believe that people who do this work for the long term see it as an honor, a privilege and a great blessing to be able to dedicate their lives to doing good work. Money is nice, but there are plenty of other things that can give one satisfaction.

Furthermore, Pallotta assumes that the best and the brightest will avoid the field because we don't pay the same as for profits. My first reaction is, "What am I, chopped liver?" My second reaction is, even if I am chopped liver, I am continually impressed by the intelligence and competency of many of the people who do this work. In addition, if anything, I have seen more people leave for profits to enter the charity sector than the other way around. My next reaction is that, I think Pallotta is wrong when it comes to the specific point of CEO salaries - the average charity CEO makes $150,000 in this country. That's plenty. Finally, even if Pallotta was correct (which he isn't), his recommendation has as much chance of success as pigs learning to fly. Just check out the most frequent donor comments on any charity we review. It's all about CEO salaries already being too high!

Having said all that, I do agree with Pallotta when it comes to front line staff (see my blog entry with Kaitlin Woolf - The Front Line vs. The Bottom Line). When compared with comparable positions within government, front line workers in the charitable sector make about 47% less (interestingly enough, I believe charity CEO's make as much as or more than their governmental peers). Of course Pallotta's solution is better salaries. I agree, but again probably not as much as he would recommend! It just isn't realistic or necessary. A decent living wage is important, but comparability with for profit salaries is excessive. Further, it is not the only option. I concluded our blog entry this way-

... I believe the most important thing a charity has to offer is its mission... If ... staff has a sense of the important role they play in achieving the mission, we have a leg up over the competition from the other sectors. In addition, I have emphasized in another blog the importance of having core values that are truly embraced by the agency from top to bottom, which nurture staff and clients. Having a dynamic, transparent, creative, inclusive, team culture is a rare commodity that will help with staff retention even when the offers of higher pay come along.
In summary, my answer to the question - Is it a sacrifice to work in the charity sector? is that, if you are doing the work for the right reasons and the agency has the right culture, it isn't a sacrifice at all. It is a gift.


19 comments:

Sean Stannard-Stockton said...

Just for the record, I'm the friend that recommended Ken read Uncharitable and the one he quotes at the top of this post.

Ken, most engineers would think it was a gift to work at Google. Not because of the pay, but because they feel that it is the most exciting company in the world. But what does any of that have to do with pay?

I'm not saying that people should go for the highest paying job. I'm complaining that donors require (As you point out), that people who want to work at a nonprofit be paid less than they would at a for-profit.

So the question to you is not is it worth the lower pay to work in a nonprofit or is doing so a sacrifice, but does it make sense for donors to require that nonprofits pay less than for-profits?

Ken Berger said...

Sean,

I apologize if the blog entry leads anyone to the conclusion that you concur with all of the points I disagreed with.

On the matter of what does pay have to do with working at an exciting company, that is my point. Pay is NOT the critical motivating factor for people who work in charities. Pallotta puts pay (especially CEO pay) in a category of importance that I think misses the mark.

As to your question, does it make sense for donors to require that nonprofits pay less? My view is that it is not the important question. If that requirement adds confidence to the donor and is no real skin off the nose of those of us who do the work, who cares?

The more important question to me is, what can we do to do more good. The other book you recommended, Forces for Good, seems much more on point to me in answering that question. Longevity of and sharing leadership, engagement, advocacy, collaboration and adaptation all make sense to me. A higher pay check is a side bar.

In the end, I find that a lot of this book misses the mark and goes off on tangents that do not get to the core issues. I in no way believe that to be the case with you my friend, even if we disagree on this matter!

Dan said...

Dear Ken,

Thank you for reading the book, thank you for the thoughtful piece here, and thank you for the civil tone of it.

I think that part of the reason thoughtful people like yourself disagree with parts of the book is that we are coming from different contexts. The question I am asking is not aimed at making a little progress. The question I am asking is What would it take for us to realize the most far-reaching achievements on a timeline that dignifies the value of a human life?; the eradication of poverty and AIDS in the next ten years, a cure for cancer and MS in the next ten years, the end of homelessness in our cities in the next ten years. I am talking about Manhattan-project-goals for the great problems that confront us. The people whose lives are at stake deserve no less ambitious a vision. And I would submit to you that we will not achieve these things with the current system. As they say in AA, insanity is doing the same thing over and over again and expecting a different result. The system as it is has failed us on these fronts. It is not of a large enough scale to cut down these massive social problems, and it will not reach that scale, or anything close to it any time soon if we do not transform the paradigm, from compensation to everything else I discuss in the book, within which it is asked to operate.

With that in mind, let me respond to some of you specific points.

"...the tendency of some of those at the top to abuse their power and influence for their own self-interest."
There will always be abuses of good things in all areas of life. We must do our best to prevent them and police them. But we must not let this reality defeat us and have us throw the baby out with the bath water. The private sector does not. We cannot allow the fact that there are a few bad apples who will try to make more than they are worth, and that they have boards who allow them to do it, to deny the entire sector the incentives that could bring armies of new talent to the great causes of our time. The truth is, even with the current philosophical prohibition on competitive compensation, there are bad apples who fleece the system. Basically, the argument you raise is not nearly persuasive enough to offset the potential of liberating the sector to market-based compensation.

"I do not see it as a sacrifice to get a salary that pays less than in the for profit sector."
Let me state respectfully that not everyone is like you, and that we do the poor a disservice when we ask everyone who might help them to be like you.

"I believe that people who do this work for the long term see it as an honor, a privilege and a great blessing to be able to dedicate their lives to doing good work."
They do, they do. But again, there aren't enough of them. As one of the sections in my book states, we have "an inadequate supply of saints."

"'What am I, chopped liver?'"
No. But at the same time, you would have to admit, as would I, that you and I are not Steve Jobs, or Warren Buffet, or Richard Branson, or Howard Shulz, and the goals I outlined above deserve the full-time talents of the Steve Jobs and Warren Buffets of the world, and we will not get them with the promise of sacrifice. When you add in the other restraints in the sector - no ability to really market, to take risks, to think in the long-term, or to raise growth capital via the promise of a financial return, there is no way we can ever attract these kinds of people. Aside from the superstar issue, I observed my classmates at Harvard who were getting into Harvard Business School. They were just plain smarter than me - quicker studies, much more able to grasp complicated concepts in finance, law and economics than I was. There is a reason they go out and make a million bucks a year in the corporate world - they produce commensurate value. And we would deny the great causes all of these peoples' talents with our "ethics." I am not saying these are the only kinds of people that produce value. I am saying that it is undeniable that these kinds of people DO produce great value, and it is counterproductive to send them away.

"...the average charity CEO makes $150,000 in this country. That's plenty."
That's plenty if you want to keep things the way they are. It's not nearly enough if we want systemic change. These are poverty wages for the best business talent in the nation. Consider the BusinessWeek study in my book. Just ten years out of Business School, the average Harvard and Stanford MBA graduate is earning $400,000. At age 38! By age 68, they are well into seven figures. People with that kind of earning potential are simply not going to make the kind of sacrifice you are asking of them. It is too dear. Over a ten year period it amounts to $2.5 million. It would be cheaper for them to donate a million dollars to charity, be praised as a "philanthropist," and keep their corporate jobs. Their talents would be lost to the causes we care about forever.

"Finally, even if Pallotta was correct (which he isn't), his recommendation has as much chance of success as pigs learning to fly. Just check out the most frequent donor comments on any charity we review. It's all about CEO salaries already being too high!"
Ken, respectfully, should humanity have accepted the notion that the earth was flat because we would have had a hard time convincing people that it was round? It is our duty to create change, and that means, more than anything else, slogging through the work of changing peoples' old ways of thinking if that thinking stands in the way of progress. It is the most important work we can be doing. It is our job to educate people about the value of an investment in a top-notch CEO to the causes they most care about.

And Ken, why are people so fixated on low CEO salaries ? You must admit that it is in part because Charity Navigator encourages them to fixate on that, and I would hope CN would change that emphasis if it is not going to post a cost-benefit analysis next to the salary figure on its website.

In summary, we have a chance to change the world here Ken. It will not change if we don't change the rules by which change is expected to be achieved.

Dan said...

Dear Ken,

In response to Sean you ask about compensation that if it "is no real skin off the nose of those of us who do the work, who cares? " If compensation doesn't matter you have an economic worldview at odds with the whole of economic history.

M said...

I find it very intriguing that Mr. Pallota thinks that a CEO-driven company of any kind would fare better... isn't this the exact action that contributed to the current economic meltdown? For him, and for you Ken, I recommend a look at the January Vanity Fair article on how the fall of Wall Street is effecting a network of other entities (preceded by an article on the big mistakes that led us to our present position) which can be found on their website. "Capitalist Fools" by Stiglitz, and "Profiles in Panic" by Shnayerson are the articles.

I have to say that I don't feel it makes sense for anyone to "require" by action or thought that people at non-profits get paid less; frankly, I think they should earn the same as their for-profit counterparts. I don't "require" this in my scouting of non-profits, but have felt the pain of it as someone who has always wanted to work in the non-profit sector; unfortunately my student loans piling up in the background kept me from working for a non-profit organization right out of college. I simply couldn't afford to live and pay bills at the same time. Mr. Pallota's assumption isn't entirely untrue, however it bears repeating that the "best and brightest" who feel the desire to work in non-profits often can't afford to. My mother (who is my role model for non-profit work) and I have discussed this many times; I have the lowest amount of student loans amongst my friends at $16,000 which is about the base pay for a new kid on the block out of all the n-ps to which I applied. I can't imagine trying to take on that, plus bills, plus rent and other general living expenses on a 16-22k/yr salary if I didn't have some other kind of income or supplement.

I agree that it appears his book does cause us to re-evaluate the stand we take and why, however it seems that he is taking his stance without doing the same thing. You may find that those of us longing to work in the n-p sector don't care about money, but that doesn't mean we have reckless abandon. Recently, we have all had to face some sobering facts about the state of debt in our country, and for now money does matter.

best,

Meg

M said...

I'll add in for posterity that I had not seen Dan's response here yet before my previous response, and that I have to agree with Ken that $150,000 is nothing to sneeze at. I understand that people want more but it blows my mind-- what do you do with that much money? If Dan's mention of policing were able to be acted upon, then perhaps the incentive-driven positions would be feasible, but especially now you would have a hard time implementing it because people are so afraid of watching the n-p sector hit the bottom.

I also would like to ask what the take is on people like myself trying to get in to the n-p sector? CEOs seem to be the hot topic, but if you can't get people in on the front end, do the CEO positions matter in the long run? Perhaps part of the problem isn't simply (and, take me with as many grains of salt as you will-- I have not read the book yet) that CEO salaries are too little, but that entry level positions pay too little. There has to be a bottom up makeover if we are to attempt changing the n-p salary structuring.

Ken Berger said...

Dan,

Thank you so much for providing your thoughts here. I reiterate that I think you are a very intelligent person (contrary to your humble self assessment) and bring a great deal to the discussion of these critical issues.

I will now briefly respond to your eloquent commentary on this blog entry.

First, I totally agree that we need to have a bold and ambitious vision to help people whose lives are at stake. My beef is not with that notion, it is the vision you are proposing. So let's go through the particulars on this matter of compensation.

1. On abuse of CEO power you respond that "we must do our best to prevent and police 'a few bad apples'.

My experience in the trenches indicates they are not a few. They are a significant number (not a majority but substantial minority). Therefore, I do not believe it is to "throw the baby out with the bathwater" to reject your idea. It is imperative that we do so because the problem already looms so large!

2. Not everyone is like you in being willing to take current salaries. Further, there is an "inadequate supply of saints".

I am thankful that everyone is not like me, but for those who want for-profit level salaries, I believe they are wrong to expect it from charities and should stay in their current jobs if that is what it will take to get them to work for a charity.

Further, I am far from a saint as are most of us in the charitable sector. That is not the issue nor is it necessary. I believe that people deserve a decent, living wage and I would be happy to join in fighting for that, not unlimited CEO compensation.

3. We will not get the Warren Buffets and other super bright talented people to join the sector unless we offer higher salaries.

I think we already DO have incredibly bright and talented people involved. Further, even Warren Buffet IS getting involved if you take a look at his incredible donation to the Gates Foundation.

4. $150,000 is incredible poverty wages for the best business talent.

We are not looking for business talent, we are looking for non-profit talent.

5. I said that no cap on CEO salaries had as much chance of happening as when pigs fly. Dan says even so, we should fight this old way of thinking.

At the end of the day, as I said in my response to Sean, it isn't all that important to me to fight for such a thing. I see this as missing the mark of what is most important to people to get them involved, whether pigs fly or hell freezes over, this still is a sideshow issue to me.

6. Why are people so fixated on low CEO salaries?

I refer you to one of my older blog entries - CEO Compensation - Donor Frustration. Here is the link - http://www.kenscommentary.org/2008/08/ceo-compensation-donor-frustration.html

I actually believe the "truth" on this issue is somewhere between your position and that of the donor public. The current salary levels put charity CEO comfortably in the middle class if not uppper middle class in some sectors. That is not saintly, it is not draining away the best and the brightest, it is not our fixation.

In fact, we do not use CEO compensation within our rating system (although it is a PART of the administrative expense overall that is in our current system). However, our ultimate aim is to serve the interests of donors and they want to know this information. I think they correctly believe this is one of the indicators as to what the priority is of the CEO. If the salary is beyond the norm of a sector and there is no evidence of a Board compensation review to assure it meets the norms, it is yet one more indicator of potential abuse that needs to be questioned.

Dan, I am all for changing the world for the better. I just respectfully disagree with your premise that the changes you propose will achieve that result.

Ken Berger said...

Dan,

On your second comment about how compensation has always mattered throughout history. Of course it does. My point is that it is not THE ONLY THING that matters to get people motivated to do great things. Nuff said.

Ken Berger said...

Dan

One of my staff thought I should be clear that, it is standard practice on 990's for CEO compensation to be allocated across various expense categories. Some of their time is allocated to administrative work, some fundraising and some may be on program services. Just a point of clarification.

Ken Berger said...

M,

I agree with Dan Pallotta on the issue of compensation for front line staff, that it is often inadequate. However, I would suggest we strive to get people a decent living wage rather than expecting to get to the same level as in the for-profit sector. This is the place where I DO think we are missing out on some very talented people like you joining the field.

I have written on the topic here in an entry called The Front Line vs. The Bottom Line. Cut and past this link to get to it - http://www.kenscommentary.org/2008/10/front-line-versus-bottom-line.html

My advice to you, given the situation you describe, is to begin with volunteer work to build up your resume so that you may eventually get a position that pays better than starting from scratch.

However, the problem of front line compensation is a tremendous challenge. Unless we can address this problem it will grow continually harder to keep programs operating, let alone operating well.

Sonia Singh said...

I work for a non-profit. I have an impact. And I'm proud of that impact.

I would like to have additional impact as a philanthropist as well as a do-gooder. But unless I become a CEO of a non-profit, I will not earn enough to have the philanthropic impact I want to make.

Why is it that I should have to choose between those two forms of impact? Yes, it's an honor and a privilege to do this work. But why should I have to sacrifice one goal for the other?

My reasons are not completely unselfish. I want to earn more for the benefit of my children. My parents struggled financially all through my childhood, and I don't want my children to miss the same opportunities I did because of money. Yet I see that happening if I stay in this sector.

This question first struck me when I was teaching financial literacy to high schoolers, and while I was standing at the chalkboard showing them the definition of low income, I realized that *I* fit that definition. I want to have an impact, but at what cost?

As I enter grad school and decide where to take my career, I am very unlikely to stay within the nonprofit sector. The main reason? I am expected to SACRIFICE what I believe in for this "honor." There are plenty of organizations other than nonprofits where I can do good while doing well.

By no means is the nonprofit sector devoid of real talent, but from conversations with my peers, the sector is undeniably losing a major pool of talent based on this one factor. It makes no sense to me why an entire sector would rule out a huge number of workers - all for the notion of sacrifice.

Just my $0.02.

Ken Berger said...

Sonia,

Your comments are worth a great deal! As I said to M in my last comment, the problem of charity job pay (not including CEOs and others in upper management) is a very serious problem. I think it is imperative that policymakers and the general public learn more about this and that we take aggressive steps to solve it.

Sonia Singh said...

Thanks, Ken, appreciate the quick response!

I was just looking at a transcript from today's live discussion at the Chronicle of Philanthropy, and one of the panelists, Karen Katz, put it great - and succinctly too!

"Keep in mind that money seldom motivates people, but it frequently 'de-motivates.'"

M said...

Ken,

Thank you for the encouragement-- I've been offered several jobs because I've had the fortune and honor to work with the American Cancer Society, the Arthritis Foundation, and work on several other collaborative fundraisers in college. It's probably best that I didn't accept these jobs; I'm making less now but I've heard from people within the organizations that they had to cut lower-level staff in recent months which would have been me.

As for living wage versus the for-profit sector pay, as someone newly in the job search market I haven't found that big of a difference between the two. The for-profit sector can start people as low as $23,000 a year and the only people I know who take those jobs instead of going to grad school (the current refuge of the less financially endowed student) are people whose parents have bought them a place to live.

I haven't had a chance to read the post you linked to, but I will soon. I'll be interested to see, overall, what will happen with jobs in the n-p sector versus the f-p sector in this economy; I wonder if there will be further divergence in the pay scale or if they will come closer together as companies cut back and the need for charitable workers grows.

Sonia,

Love that quote from Katz-- it's sad but true!

best to both,

Meg

Ken Berger said...

M,

I do not have the data handy on np vs fp salaries, but I do know that np salaries pay 53% of what comparable government jobs pay! Then again, government has been doing a lot of privatizing of services to reduce their costs!

Sandra Snowden said...

I am new to the Navigator and just finished reading all of the comments on the latest blog. It all was food for thought. In considering all the comments I would like to add mine:

I am an African American 63 year old who has dedicated her life to the non-profit sector. I am currently a consultant that assists individuals and organizations in applying for non-profit status. The majority of my clients are those who have “divine visions” and want to make them a reality. My concerns are: the lack of funding and qualified help

We, in the African American community, have great difficulty in securing funding, I believe, because the larger n-p organizations that have similar missions have conquered possible funding sources because of their longevity.

Qualified help
Even African Americans who are college graduates receive lower salaries than their counterparts, thus working in the n-p sector is not a consideration for most of them. If they begin in the n-p sector, it is only to gain experience and get a better paying job. As a single mother, who reared three children, it was extremely difficult for me; however, I made the sacrifice. Now, looking at my social security, I wonder if I made the right decision. Yes, I feel good about my work but living off $1,000….

Therefore, I agree that an overhauling of the n-p system needs to occur now. We who care need to lobby the government. In the near future, if not now, there will be more need for the n-p because of the decline of the profit sector.

Who is truly a donor? Those who micro-manage and police every penny? Oh, by the way, I believe in accountability!!!

PS I have not read the books, but I will.

Ken Berger said...

Sandra,

Welcome to Charity Navigator and thank you for your thoughtful comments and insights.

One point of clarification: I agree with you that we should not micro manage every penny, but we SHOULD find and use tools to make sure that every penny counts! Charities need to have good financial management, as well as an outcome driven culture.

M said...

Sandra

Fantastic comment! With any luck, Obama's fair pay act will go a long way to securing equal compensation not just for women, but minorities as well. Best of luck to you, and while it might not pay the bills, I'm sure you've made a lot of people's dreams come true.

Todd said...

Interesting article
ToddDiroberto