Kicking off a pay audit for the information technology arm of a nonprofit early in my consulting career, my charge was laid out for me as follows by the Vice President heading up the unit: "We know that we (the IT staff) pay a price for working here. We simply want to make sure that our sacrifice is in line with that of the rest of the organization - that we aren't "more behind" than the other employee groups."
I recall being caught off guard by his candid appraisal of the situation. And my work with nonprofits in the intervening years has served to strengthen my belief in the absolute wrong-headedness of this.
We say to students who choose charity, You must watch your classmates who chose the for-profit sector pass you by on the economic highway — buy homes in better neighborhoods, send their kids to better schools, drive safer cars, take better care of their aging parents, indeed serve on the boards of and direct the very charities that employ you — but you, because you have chosen to help the indigent, you must sacrifice — you can have none of this power, none of this security.
Dan further delineates just what that sacrifice might entail, for the best and brightest ...
A few years ago Business Week did a survey of Harvard MBAs ten years out of business school, at an average age of 38. Their median annual compensation was $380,000. The average compensation for the CEO of a hunger charity in America at the same time was $84,000. We're not going to get many people with a $380,000 annual earning potential to make a $296,000 annual sacrifice to run a hunger charity. It's cheaper for them to donate $100,000 a year to the hunger charity, get a $50,000 tax savings, still be ahead by $246,000 a year, and have a lifetime of huge earning potential still awaiting them. They can realize their economic dreams and get the psychic benefit of making a difference, but the hungry lose their full-time talents forever. Do we really think it is of comfort to the mother whose child just died of starvation to know that at least no one was making any money in the failed effort to save her son?
And draws our attention to the crux of the problem ...
Yes, we can change the world. Yes, we must. But to do it we must right the injustice that allows a baseball player to be paid $5 million a year and have it celebrated in Forbes, but cries "foul!" when the guy running the charity trying to cure cancer makes $400,000.
As I've noted in earlier vents on this subject, I see little sound reason for and ultimately little to be gained by setting the expectation that pay at nonprofits should be at below-market levels for comparable opportunities. Not just because it is wrong and because it forces a terrible choice on talented people who might be able to make a real difference in solving important problems, but also because paying people less than they are worth can create a host of hidden and unintended consequences that ultimately hurt the organization and lower the return on our charitable investments. These can range from a reluctance to set and hold people to tough performance standards (because it seems unfair to do when we are underpaying them so) to poor staffing decisions (such as hiring the cheapest talent available rather than the right talent for the need).
Naturally, as I've said before, administrative costs should be carefully managed. But to scrimp where we should be investing - in tools, in technology and (most importantly) in talent - is to miss the opportunity to drive real results for the constituents our nonprofit institutions serve.
And that is neither good business sense nor a smart use of our charitable dollars.
Ann Bares is the Editor of Compensation Café, Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations. She earned her M.B.A. at Northwestern University’s Kellogg School, enjoys reading in her spare time and is currently trying to decide whether to follow her daughter to China this summer. Follow her on Twitter at @annbares.