I continue to bump into people who design - or oversee the design of - compensation plans in non-profits and who are not aware of this potential issue, so I thought the topic worth a post.
The Association of Fundraising Professionals, as part of its Code of Ethical Principles and Standards, specifically prohibits its members from accepting compensation that is based directly on fundraising contributions.
Specifically, the code states:
(21) Members shall not accept compensation or enter into a contract that is based on a percentage of contributions...
This does not mean that incentives - or performance-based compensation - is off the table for fundraising and development positions. As the code states:
(22) Members may accept performance-based compensation, such as bonuses, provided such bonuses are in accord with prevailing practices within the member's own organization and are not based on a percentage of contributions.
And yet contribution-based incentive plans, many of them astonishingly commission-like in their structure, continue to proliferate in fundraising and related fields. Even in the face of Intermediate Sanctions regulations (IRS 4958) which prohibits any revenue-sharing arrangements as cases of private inurement.
In my work with non-profits, and particularly in the development and fundraising areas, I encourage a focus on "lead" measures when designing incentive and other pay-for-performance programs. Lead measures, as I've posted before, focus on achievements that are predictive of success; in this case, success in securing contributions. Lead measures could reflect the attainment of key elements of a fundraising strategy - which might range from communication to event management to internal process improvement - and which should lead ultimately to fundraising success. Conversely, the contributions themselves are a "lag" measure, reflecting success that has already taken place (similar to traditional for-profit accounting measures like revenues and net income).
Even the for-profit world is placing increasing emphasis on "balanced" and forward-thinking metrics; lead as well as lag measures. For non-profits, however, the notion of balance in measures is critical, particularly as we begin tying them to compensation.
And, as one of my favorite quotes goes, someone once said that running an organization solely on the basis of lag measures is like steering a boat by looking at its wake.