Fundraisers Aren't Allowed a Cut of the "Profits"

In the recent issue of Advancing Philanthropy published by the Association of Fundraising Professionals (AFP), the organization's president, Paulette V. Maehara, describes "The Percentage Problem." For those who don't know, the Association's members (and any reputable fundraiser) are not ethically allowed to take their compensation in the form of a percentage of dollars raised.

When I ran a struggling non-profit, I was more than once tempted to pursue a different path whereby I could reward a fundraiser for successful performance, not just a strong attempt. My (desperate) thinking: I've got no money to hire someone and if this gal can bring in some funds, why not give her a big chunk of money I don't think I can access anyway?

AFP has a white paper outlining why it is a bad idea. It's not written in English but I think you will get the drift:

1. If the self-inurement principle is violated, the mission and long-term interests of the charity may become secondary to the worker's personal interest and self-gain. The donor's (and public's) interest and needs may no longer be foremost.

2. Donor attitudes can be unalterably damaged in reaction to undue pressure and the awareness that a commission will be paid to a fundraiser from his or her gift, thus compromising the trust on which charity relies.

3. Percentage-based compensation or commissions can foster inappropriate conduct by individuals whose self-interest is oriented to immediate results, irrespective of the donor's best interests.

The white paper dates back to 1992 but given the increasingly competitive environment nonprofits face, there's no doubt this standard is more important than ever.

Susan Herr

Posted at 1:49 AM, Apr 17, 2008 in Permalink | Comments (3)


Can’t We Just End the Hypocrisy?

If you’re a charity that does or wants to do cause-related marketing or sponsorship, which is my specialty, how do you pay your cause marketers?

For those of you on the corporate side or in agencies, this probably sounds like an easy question. You pay them a base salary plus a percentage-based commission based on how much they raise. No different than paying your top salesperson. It rewards performance and punishes mediocrity. Great cause-marketers should make more money, right?

In fact, for nonprofits it’s fraught with worries, concerns, and ethical dilemmas.

Notice I didn’t say commission-based pay is illegal. So far as I know paying nonprofit fundraisers a commission is not illegal. But you can’t be a member of the AFP if you accept commission-based compensation. And good luck finding a grantwriter who will work on a commission basis.

Here’s why commission-based compensation is frowned upon. In the United States, some donors flat out won’t give you money to pay for overhead like salaries. A number of grant-making foundations won’t allow their money to be used for commission type pay. That's because, the argument goes, personal inurement in a nonprofit setting should always be secondary to furthering the nonprofit's mission. Donor trust can be damaged if fundraisers were commission-based or self-dealing could result.

There's no denying that commission-based pay feels unseemly in a nonprofit setting. It generates images of sales sharks in boiler rooms scamming the elderly, ala the 1992 movie Glengarry Glen Ross.

What can you do to reward especially-effective employees? Well you can give them bonuses and perks. I don’t think even the AFP has a problem with paying higher bonuses to the fundraiser who raises more than her peers.

Let me give you an example. I worked at a marketing-driven 501(c)(3) nonprofit which had a bonus structure for employees who worked in sales-type positions. Meet agreed-upon fundraising goals and you received a bonus.

A colleague did a sponsorship deal worth $1 million a year over three years that was well above and beyond his established fundraising goals. The nonprofit we worked for wouldn’t pay a commission. Instead my colleague and the nonprofit negotiated a bonus that was paid out over the life of the sponsorship. Strictly speaking, there were no percentages involved and so it wasn’t a commission. But for those three years he was one of the highest-paid staffers there.

Moreover, both parties knew that if and when he did more such large-scale deals, he would get another “above and beyond” bonus. It wasn’t a commission, it was a bonus. But it was a distinction without a difference.

That’s my argument with the anti-commission folks. Top performers end up with compensation schemes that do what commissions do.

There are ways to do this without turning into the nonprofit world into Glengarry Glen Ross. And let's not forget that fraud is illegal, inside or outside of nonprofits. Ethical rules against commission-based schemes aren't exactly the last bulwark against fraud.

So why continue the hypocrisy?

Posted by: Paul Jones

It is a two edge sword of making sure a person raises the money goal verses how to pay the person. The first step is to have a strategic plan to your fundraising goals and that it is tied to the organizations over all strategic plan. Personality of hired staff makes outcomes too personal. You need to have contracted individuals to write and implement your proposal writing to foundations and corporations. You lay out the plan and the work product gets done. If not the person does not get paid. Positive outcome of proposal writing increases when the submissions are realisitic and base on facts related to the organization and the entity your applying to matching.

A great program with dedicated staff does not make the cut.

The work should be conducted over the whole year.

Posted by: robert guinto

It could be that NP Orgs are run as NP orgs and not as businesses.

For Profit Businesses recognize that the main motivation for an employee is to support his family. A means to do that is to help the Company maintain continuing long term growth. In sales, this is aided by a performance based compensation. Money motivation does not necessarily negate integration of the businesses core mission into the salesperson's psyche.

Why must a passionate sales person for a NPO not be allowed to support his/her family based upon the skills, talents and abilities that they have been endowed with and have developed.

Call a spade a spade and not a pitchfork.

Posted by: Hillel Levin