Uncharitable
I never have envisioned myself as a blogger. But here I am taking over Tony Pipa’s blog, musing that “Sherine Jayawickrama’s blog” doesn’t roll off the tongue in quite the same way (unless you are Sri Lankan, of course) and wondering how on earth I got into this.
So how did I get into this? I’ve been reflecting, for the past few days, on how and why people get into – and stay in – the nonprofit world, after hearing Dan Pallotta (author of Uncharitable) speak at a gathering at the Hauser Center for Nonprofit Organizations, where I am based.
Pallotta argues that society denies nonprofits the use of capitalist tools (related to compensation, profit, marketing, and investment in growing revenue) and, as a result, undermines the effectiveness of nonprofits. According to Pallotta, the best and the brightest go into the for-profit sector where their talents are compensated with bigger financial rewards.
The reaction to Pallotta’s argument was interesting. Everyone applauded his provocative arguments and felt he was catalyzing an important discussion. But some balked at some of the implications of Pallotta’s argument regarding compensation. One person noted that many of the most talented and committed people in nonprofits were not driven mainly by monetary incentives. Another felt that compensation on par with the private sector might lead to people joining nonprofits not out of commitment to the mission but just for the monetary incentive – and that would not increase impact.
Blame me for taking it personally, but here’s what didn’t sit well: Pallotta’s argument implies that people who work in nonprofits are there because they cannot find better-paying jobs! I beg to differ.
I have spent almost all of my career in the nonprofit world, most of it focused on reducing poverty and promoting sustainable development. I like to think that my skills would bring me greater compensation in the corporate world. That I didn’t pursue that avenue and worked at CARE for ten years (and other nonprofits before that) doesn’t make me a saint; nor does it make me a bleeding heart. I am an economist – so I am reasonably confident that it is self-interest that keeps me in the nonprofit world.
The issues I have worked on have been meaningful and challenging. The people I have worked with – colleagues and individuals in poor communities – have given me new knowledge and insight. The experiences I have gained have made me a more skilled professional. Working toward a vision of a better world has inspires and drives me. I remain in the nonprofit world because it motivates, challenges and rewards me in so many ways, only one of which is financial. In other words, I remain out of self-interest!
But that’s only one person’s story. I’d love to hear others. I do think that Dan Pallotta is correct to say that there many committed people who, for example, faced with a mountain of graduate school debt and family obligations, choose corporate jobs because they can’t afford to work in the nonprofit sector. Is leveling the compensation playing field between the corporate and nonprofit sector the answer? Or is there merit to retaining some of the “nonprofit ethic” that leads to the double standards that Pallotta highlights?
Dear Sherine,
Thank you for the post. Two comments.
First, my argument is that the lack of competitive compensation keeps many, not all talented people away from the nonprofit sector. It does not at all follow that I am implying “that people who work in nonprofits are there because they cannot find better-paying jobs” as you state. But God only knows what talent we are denying the neediest people in this world because of our aversion to financial incentive. And how interesting that no one is writing blogs about the money the Pittsburgh Steelers get paid for throwing a football around.
Second, it has been consistently fascinating to me how, out of the five critical discriminations I point out in the book, without fail, what everyone wants to talk about is the issue of compensation. It is a visceral propensity, which tells me there is something other than logic at play here, because it is by no means the most important of the five. We have a lot of energy on, to use a California phrase, money. I believe what is at play is our deeper Puritan/religious self-annihilating conditioning, i.e. that self-interest is contaminating, which is exactly what the Puritans taught, even while they were price-gouging. Charity became their ameliorative, if tortured, monument to their Calvinist distaste for self-interest. This leads to the notion that it is immoral to make any money helping people, even while our culture finds it perfectly moral to make a fortune doing things that may hurt them. From this logic, or utter lack of it, we must now move on.
Dan,
I think you dismiss Sherine’s reaction too easily. A direct quote from the book:
“If we allow charity to compensate people according to the value they produce, we can attract more leaders of the kind the for profit sector attracts, and we can produce greater value.”
The implication in this statement is that the nonprofit sector is underperforming because it attracts limited talent and that it needs leaders that now go into business - that talent from the business world will somehow “save” the sector from its ineffectiveness.
OK, perhaps that’s a bit reactionary. But yours is an assertion that “talent” that now doesn’t go into the sector because the money isn’t comparable would somehow expand its impact. What’s the evidence for that?
What Sherine is pointing out is that many people in the nonprofit sector - myself among them - do not equate compensation with monetary remuneration only. Compensation is a composite of many factors that also might include a visceral sense of being connected to something larger than oneself; spiritual or emotional fulfillment; a sense of a job well-done in service to others. It’s the complete package of many different factors, many of them value-oriented and value-driven, that comprise my overall “compensation.” All people view compensation this way to some degree, but people in mission-driven organizations likely place more emphasis on the intangibles - for some of us, they are more important than money.
And it’s not out of some sense of “sacrifice.” Your preoccupation with Puritan logic might have some truth to how donors view this equation. But I don’t think it holds for how people working in the sector come at it. I’m not making some sacrifice by consciously choosing to work in service even though I’m going to receive less money.
This mindset is one of the distinctive features of the nonprofit sector and sets it apart. I view it as a strength rather than a weakness, because it brings creative thinking, innovation, and a perspective that’s not prevalent in the for-profit arena. It’s given rise to the concept of sustainability, for example, which has become fairly mainstream these days, but in its early incarnation was considered pretty counter-cultural. Sustainability is about taking what you need, not what you can, being mindful of the long-term health of the community. Apropos here.
This is why Sean Stannard-Stockon’s assertion, (http://tacticalphilanthropy.com/2008/12/uncharitable#comments) in your dialogue on the Tactical Philanthropy blog, that young starry-eyed idealists will ultimately realize they’re not getting paid what they’re worth and will move to a for-profit job, does not ring true. What’s the evidence for that? After 25 years I haven’t moved to a for-profit company and don’t see myself doing it any time soon. And I have long-time peers in the sector who feel the same way.
Frustration and burn-out arise when the pay isn’t even good enough to provide for yourself and your family without high levels of anxiety, and when that anxiety outweighs the intangibles. And when underinvestment in human capital - training, resources - makes it impossible to get what you need to perform at the highest level. Both are acknowledged problems in the sector, and you do a great service by tackling them head-on.
But instead of trying to import all this “talent” that would normally go into the for-profit sector, I think we’d have much greater impact by investing properly in the talent we already have. It’s enormous - who in what sector does so much with so little? - and it’s still enormously untapped.
PS. It’s clear that this debate would be advanced enormously by data. The evidence for who chooses to work where and why is mostly anecdotal. I’m reminded of the teacher surveys that showed low levels of compensation were not their number one frustration - that it was lack of control over what they did in the classroom and lack of development/training. It would be good to see surveys that rate job satisfaction among nonprofit executives and see what factors are rated as barriers.
This lively conversation is worthwhile, but its narrow focus doesn’t do justice to the bigger point. Dan proposes multiple ways of encouraging innovation and expansion in the nonprofit field, and compensation is only one of them. Dan was clear: he doesn’t suggest that nonprofit leaders make the same gargantuan mega-million dollar salaries found in the private sector, but he does suggest that the gross inbalance between sectors doesn’t help the cause. I agree.
Nowhere is this more apparent than at the Kennedy School where most students who matriculate plan to go into public service, but most graduate and go into the private sector instead. It might also be revealing to compare students across sectors according to their stipends, scholarships, and other financial support. There are many students at the Kennedy School who pay nothing to be there, and many who receive full salaries from their jobs while they are enrolled. In both cases, it might be demonstrated that very few of these subsidized students are from the NPO sector. The mindset of sacrifice and poverty is deeply embedded in the field, and in my estimation, that is what cross-cuts all five of Dan’s points, compensation included.
Dan’s book is not written from the perspective of a social scientist. It’s not meant to be a data-driven, quantifiable treatment of the subject. It’s a personal account and analysis based on his experience in the field. Nonetheless, I suggest that if Dan is looking for some good statistics to support his claims, they could be found right here in the Hauser Center’s own backyard, at the Kennedy School.
One thing we all agree on: compensation comes in many forms. Monetary compensation is just one. Education and personal development are others.
I think this conversation is actually a good test of Dan’s larger point. My point is to demonstrate that nonprofit sector has distinctive characteristics - characteristics that are a source of strength - that are dismissed, or are not accounted for, in his arguments - and that wholesale adoption of business practices could subvert those strengths.
I find that his arguments veer between saying that the sector should improve its investment in human capital so that people who are on the margin - mission-driven or profit-driven job? - find a more hospitable home in in the sector, or saying that the nonprofit sector needs to be able to compete at the same level for every potential leader - and that compensation plays the critical role in getting to that level.
I’m not a social scientist either and am basing my analysis on my own experience as a long-time executive in the field. That’s why it would be good to have evidence - we could go ’round and ’round. Do “most” graduates at the Kennedy School really intend to go into public service but go to the private sector instead? Many of my fellow students at the Kennedy School used their experience to make a successful shift from the corporate world to the nonprofit or public sector. And so on. I agree completely with your points that HKS might be a good place to start!
I agree wholeheartedly with many of Dan’s points, but I think his starting points dismiss the strengths of the sector too facilely and that we need to critically analyze whether his propositions would erode some of the very things that make it valuable.
Re: the poverty/sacrifice mindset. Does it really come from “within” the field or from without - i.e., from the perceptions of donors and the general public? I’m a vigorous proponent that my colleagues need far more investment in human capital, for example, but there are few donors who - though they would agree philosophically - don’t get uncomfortable when they start to look at the numbers.
Sherine’s argument and Tony’s assertion is similar to if Dan had said that the diet of American’s was leading to unhealthy levels of obesity and the two of you saying “are you calling me fat?!”. The fact that the nonprofit sector underpays compared to the for-profit sector definitely decreases its attractiveness to potential employees. To suggest otherwise means you must refute the basic underpinnings of economics. However, that doesn’t mean that no talented people work at nonprofits. It means that pay is a discouraging factor. Many people over come the pay issue just like many American’s are not overweight even though as a country we have a high fat diet.
The flip side of your argument would be to say that people who work at for-profits are greedy. Unless you are prepared to assert that everyone who works at a for-profit is greedy, you can’t refute Dan’s argument by pointing to individual, highly talented people in the nonprofit sector.
Dear Tony,
Sorry for the delay here. I’d like to address a few points.
1. Data on the Correlation Between Compensation and Satisfaction
In 2006 Compasspoint did a survey of 1,932 nonprofit executive directors in eight states. They found that, “… three-quarters don’t plan on being in their current job five years from now. Most don’t see themselves leading another nonprofit organization…Frustrations with boards of directors and institutional funders, lack of management and administrative support, and below-market compensation add stress to a role that can be challenging even in the best circumstances.”
2. The fact that you and Sherine don’t see yourselves as making sacrifices.
Many people don’t, and I get that you don’t, but some people do. The same study cited above found that 2/3 of executive directors believe “they have made a significant sacrifice to do this work…On a 6-point scale 39% of executives under 40 years old rate their sacrifice as a 6…as do 32% of executives in their 50s and 60s.”
2. Your Comment, “But instead of trying to import all this ‘talent’ that would normally go into the for-profit sector, I think we’d have much greater impact by investing properly in the talent we already have.”
I don’t understand why they’re mutually exclusive. Why not do both?
3. Your Comment, “Compensation is a composite of many factors that also might include a visceral sense of being connected to something larger than oneself;”
I agree, but if the compensation is not high enough in the mix it will preclude certain valuable talent. Why? Because the nonprofit sector does not have a monopoly on offering a visceral sense of being connected to something larger than oneself. The people building Apple computers are passionate about changing the world’s operating system, the people building the Prius can certainly have visceral sense of contribution. The people at Grumman who built the lunar module had to have felt the same. The for-profit sector offers people high levels of both compensation and contribution. Thus we put the most urgent social needs at a severe competitive disadvantage by restricting its ability to compete on compensation.
4. Your Comment, “I view it as a strength rather than a weakness, because it brings creative thinking, innovation, and a perspective that’s not prevalent in the for-profit arena.”
I have to disagree strongly. I simply haven’t seen the nonprofit sector match the creativity I see coming out of Pixar, Google, Apple, Toyota, Chiaat-Day, Scaled Composites (which built Spaceship One), Smart Car, Dean Kamin’s company ( which built the Segway and the stair-climbing wheelchair) Tesla, Virgin, or a hundred others. In large part, this is because of organizational deprivation - i.e., the lack of resources with which to experiment, imagine, and pursue and test dreams.
5. The Puritan Preoccupation
I don’t see nonprofit staff as being self-annihilating - you seem to understand that I view the Puritan ethic as one being forced on the sector from the outside, i.e., from donors, although it is often reinforced from within.
6. Money as Contaminating
This is not so much in response to you as in general. This notion that people who want money don’t have love in their hearts is at odds with the fact that large pieces of the nonprofit sector are funded by people who made the pursuit of wealth a high priority; indeed Harvard and Hauser are prime examples.
Many thanks to Dan, Sean, Thor and Tony for engaging in an interesting discussion on my first post. There’s certainly no shortage of opinions on this issue! Each person’s opinion seems to come from his or her personal experience (including mine), in the absence of definitive evidence on the extent to which nonprofit compensation inhibits the impact of the sector by discouraging talented people from entering – or staying in – the nonprofit arena.
Based on this rich exchange, I have four reflections.
First, Sean’s incisive comment leads me to clarify my position. Yes, monetary compensation in the nonprofit sector is a discouraging factor – and it can inhibit many talented people from coming into the sector. While I agree that nonprofits are not as effective as they should be (given the scale of the problems they seek to address), I think there are many reasons for this. I’m not sure compensation is top of the list. In the nonprofit world, we are often self-critical – but some transformative concepts have originated in the nonprofit sector: microcredit and community organizing are just two of them.
Second, on this issue, and many others, it is hard to paint all nonprofits with the same brush. I think Dan’s argument with respect to compensation applies to some nonprofits more than others. I would bet, for example, that low compensation keeps many committed people away from teaching in public schools. Low monetary compensation combines with a slew of other negatives to keep talent out of an area where it is desperately needed. In large, relatively well-paying nonprofits, compensation may keep away talent in areas like marketing and communications (where nonprofits often compete with the corporate sector). But in program or technical jobs, when there is difficulty recruiting adequately skilled people, compensation is often not the main factor.
Third, I’m no socialist, but I have a healthy skepticism about applying market principles comprehensively to socioeconomic problems like poverty, inequality, ill health and poor education, which have been caused (in part) by market failures. So, I agree that society should be comfortable with nonprofits compensating at rates that are competitive enough to attract a talent pool that is capable of addressing the problems on which they are focused. I just don’t think that equalizing compensation between the nonprofit and for-profits sectors is necessary to accomplish that. In fact, I think that may attract into the nonprofit sector people who don’t have the knowledge, passion or insight to be effective.
Finally, nonprofits that work across countries – especially those working in developing countries – must consider intra-organizational equity issues. As it is, U.S.-based international NGOs compensate U.S.-based staff – or expatriate staff on U.S. payroll – several times more than local staff in developing countries. It is an unsatisfactory and inequitable system. Not many organizations have solved the conundrum: if local staff are paid at the same rates that expatriates and U.S.-based staff are, that would cause brain drain that is harmful to the country concerned (think of doctors and teachers becoming drivers or janitors because the pay is so much better) and the cost of such an operating model would make most NGOs unviable. I have been on both the expatriate and local sides of this dilemma, and that partly explains my reaction to Dan’s compensation argument.
Sherine,
Thank you too for participating in, indeed starting this discussion.
I have to say that I don’t find your arguments compelling. Let me explain why.
First, I did cite data above that shows talent leaving the sector because of low compensation (among other factors). It’s axiomatic that it would keep others from entering.
Second, you say that poverty, ill health, and poor education are caused by market failures. I strongly disagree. Poverty, susceptibility to ill health, and lack of education are humankind’s natural state. It is the market that has helped to lift much of humanity out of those states. While it may have done so unequally, I think we would all agree that it is better than a system that would have failed to lift any of us out of these conditions. On the subject of the inequity, this is the fundamental point of my book - that it is irrational to blame the inequities in our society on capitalism (presumably able to create them because it is very powerful) and then refuse to allow the nonprofit sector to use the tools of capitalism to rectify those inequities - i.e., to refuse to allow it to compete. I don’t believe capitalism is the problem - I believe the lack of it is. It has been banished from the realm of solving the world’s most urgent problems, and thus they persist. When you allow the for-profit sector to use all of the tools of capitalism and prohibit the nonprofit sector from doing so you place the nonprofit sector at the most extreme disadvantage to the for-profit sector, particularly in the competition for the consumer’s dollar. Is this deniable?
Third, you state that, “I agree that society should be comfortable with nonprofits compensating at rates that are competitive enough to attract a talent pool that is capable of addressing the problems on which they are focused. I just don’t think that equalizing compensation between the nonprofit and for-profits sectors is necessary to accomplish that.” What data do you have to support this thinking? I can tell you that in ten years of running a business with a charitable end purpose and interviewing many dozens of candidates for leadership positions, our lack of ability to compete for salary with the for-profit sector was a constant issue, and we lost many good people to it.
Last, you state that, high compensation, “may attract into the nonprofit sector people who don’t have the knowledge, passion or insight to be effective.” What’s the basis for this statement? If anything, people who have high earning potentials have them because they have demonstrated a capacity to produce economic value, which must at least indicate that they are intelligent and effective. One cannot have their cake and eat it too on this argument, i.e., argue that corporations are greedy, and all they care about is profit, and then argue that they’re gratuitously throwing profits down the toilet by hiring people who aren’t worth what they’re being paid. Moreover, I have to say that I find this argument, made by many in the nonprofit sector, that people who who are interested in money lack passion about issues of social concern to be prejudiced, troubling at best, and at odds with too many examples to count. The first thing people who amass great wealth seem to want to do is establish foundations for helping people in this world. And a huge part of what allowed them to amass wealth was their passion - often for making the world a better, more productive place - so they’re contributing at both ends - in their day-to-day work, and in their philanthropic giving, e.g. Ford, Disney, Jobs, Gates, Winfrey, the Wright Brothers, Page & Brin, and all of the other great entrepreneurs throughout history.
If we want dramatic change, we need a dramatic change in the rules. Would you disagree with that? Surely, leaving things pretty much as they are, save some changes to the window dressing, is bound to leave social conditions pretty much the way they are as well. I know none of us wants that.
Thanks again Sherine - this is all argued in a spirit of productive discourse.
Dan, Sean, Thor, & Sherine, a rich and thoughtful discussion! Sherine, thanks for getting this started - obviously rich ideas to share.
Dan, I’m glad you cited the CompassPoint surveys - I was going to do so in my original comment about teacher pay. In fact, none of the CompassPoint surveys disaggregate monetary compensation from the other factors listed and ranks them accordingly. It was only when teacher pay was increased significantly, yet no great numbers of talent flocked to become teachers, did it become clear that other considerations might be far more important. And CP acknowledges that even though EDs say they’re going to leave, the CP surveys (which are done regularly) seem to demonstrate that they don’t actually follow through.
Re: your point #4 about innovation in your response to my post. If you were to look at the amount invested in each sector (and I mean real amounts that are put to productive use, not gifts given to foundations that are set aside for 5% payouts) and viewed innovation proportionately, you might take a different view about how innovative the nonprofit sector is. I agree completely that there are a lack of resources with which to experiment and fail - but that’s R&D money, not compensation. Offer each of the EDs in the CompassPoint surveys the same R&D budget relative to the companies you mentioned, and I think you’d see the satisfaction scale zoom up PDQ.
Both you and Sean are flat-out wrong in stating that the implications of my argument is that people in the for-profit sector are greedy. Not at all. If you understand my formulation of compensation not being equal to monetary remuneration alone, people in the for-profit sector simply place monetary gain at a different level among all the considerations that comprise fulfillment from work. Focusing on monetary gain to the EXCLUSION of all other factors - that’s greedy. And that’s not where I think - nor ever implied - the bulk of working people are.
Are people in the sector chronically underpaid, especially in the small- to mid-sized nonprofits that make up most of the sector? Absolutely. Is there a chronic lack of investment in training, HR development, and other human capital advances? Absolutely. Is there a yawning lack of resources to allow experimentation and failure? Absolutely.
Does it follow that the nonprofit sector should compete one-to-one with the for-profit sector on monetary compensation? Absolutely not. The nonprofit sector’s mission-driven ethos is a strength, and making it part of the package plays to the distinctive characteristics that make it valuable and socially innovative. The sector should find the right levels of compensation that make sense for itself, not business.
In the book, you use the examples of Bill Gates and Michael Dell, and say Bill Gates would never be willing to work for $350,000/WEEK, let alone a year. Actually, in salary terms, Gates DID work for much less than $350K/week. It was his ownership of Microsoft that made him so wealthy, not his yearly salary. Nonprofits don’t offer ownership stakes. This is a point that makes the practicality of your argument much more complicated than you allow. Ownership is a key consideration for for-profit entrepreneurs and attracting talent in that sector.
Also, in your comment to Sherine about philanthropists, you don’t allow that people prioritize different things at different points in their lives. In my formulation, Bill Gates has simply recalibrated the calculus of what he wants out of work at this point in his life - the same set of factors are there, just balanced differently. In my work with high-wealth people, I have personally heard this story many times - that once they attained the level of wealth they desired (based on many different motivations and goals), or sold their business, or raised their families, etc. they decided to allow the community-minded or mission-driven part of their selves to take greater precedence.
But at the end of the day, what’s missing from your argument is evidence that compensation at for-profit rates will bring greater impact (and at a time when questions are being raised whether high rates of compensation in the for-profit sector actually reflect value produced). The IRS is about to release a study on nonprofit hospitals. “The report is expected to point to high levels of executive compensation and a wide disparity in how much hospitals do to serve their communities and provide charity care.” (Chronicle of Philanthropy) At least in this case, it would not appear that higher compensation has led to greater impact for the poor.
Dear Tony,
I’m swamped for about a week - will respond when the dust settles, but maybe for the short-term, and in the interest of focusing and clarifying; let’s say a nonprofit organization is searching for a new CEO. Are you saying that a higher salary offering will not give the organization access to a more experienced, proven, capable leadership talent pool than a lower offering? I don’t believe that you are, but the sum of your arguments and your passion makes it feel that way. And, if so, why do we have any kind of compensation scale at all in the sector?
In general, the answer to your question is no. But only up to a point. I’m also saying that offering for-profit rates isn’t the way to attract the very best pool of CEO candidates. When you make it ALL about economics, you start making it ONLY about economics, and begin to draw attention away from the mission- and value-driven component that gives the sector its distinctive advantage and socially innovative strength. I’m basically arguing for a middle ground - yes, compensation rates need to increase (in some cases dramatically), but the sector needs to find levels that fit itself, not the for-profit market.