Quanta Corporate Citizenship NGOs salaries, retention and the curse of proximity
by Gus Romano
| Quanta Corporate Citizenship |
When it comes to philanthropy, very few topics are more heatedly debated than salaries paid by NGOs to their staff.
After studying the salary differences within the charitable sector, and finding that orchestra conductors and university football coaches have salaries in the low millions of US Dollars, while those leading significantly larger and more complex organisations working with impoverish populations have salaries in the low hundreds of thousands, Don Pallotta, author of Uncharitable: How Restrains on Nonprofits Undermine their Potential, coined the expression ‘curse of proximity’.
Accordingly to Pallotta, “A market approach is allowed within the nonprofit sector when the emotional sympathy for the needy is absent; high salaries can be paid to entertain high society without a question. But the moment the thought of a starving child or a struggling mother is introduced, all the rules change. Images of the needy work against them. Indeed, there's a direct correlation between leaders' nearness to suffering and public outrage over their compensation. If you're conducting Mahler's 5th, no problem. But if you're trying to end poverty in Malawi, watch out. The situation is seen as a zero-sum game, in which any money going to the professional is money being taken away from those suffering. (…) It doesn't occur to us that the presence of a better, more highly paid professional may generate more money to the cause and to the people in need.” [1]
His argument is undeniable: salaries of leaders in the NGO sector are not only dictated by impact, experience required, risk, stress, revenue improvement or growth prospect, but also by the type of, and the proximity to,beneficiaries. Donors will find it morally justifiable to pay a notably higher salary to a museum curator, an orchestra conductor or the leader of a think tank, but will find it difficult to accept that someone running organisations working with poor beneficiaries can have a salary on the same level, despite the fact they are probably running organisations with incredibly larger budgets, more complex operations, greater numbers of beneficiaries, providing more life-or-death services, and with greater global presence. Whether the reason is actually the curse of proximity identified by Pallotta, or whether it is because donors might perceive the first group of services as a transaction from which they benefit directly, whilst the second is a ‘sunk cost’ from which they do not derive personal benefit, we don’t know, but there is certainly a strong correlation.
The problem is that, regardless of the reason, a significant part of the social enterprise and charitable sectors grossly underpay their staff – especially those in more senior positions – when compared to other parts of the charity spectrum and the corporate sector. That generates a series of consequences that any organisation willing to establish strategic relationships need to understand and take into account before deciding to invest on philanthropy.
The first problem is the difficulty charities face in attracting high calibre individuals. As Pallotta identified, “when a business wants to acquire a leader it offers a compensation package higher than what its competitor is paying to lure the person away (…) For-profit businesses set their sights on who they want and pay to acquire them. By contrast, it wouldn't occur to the humanitarian organisations to set their sights on the kind of leaders they would want if they gave themselves permission to dream a little bit — superstars with breathtaking track records who could quadruple their size in five years. Rather, nonprofits sets their sights on a pay range designed to ensure that it attracts no one worth any more money than any of its peers and then sorts through the available candidates (…) Is it any wonder then that the number of nonprofits that have crossed the US$50 million annual revenue barrier in the four decades since 1970 is 144, while the number of for-profits that have done so is 46,136?” [2].
That is not to say that the sector has no high calibre and highly committed individuals: it clearly does have some of the most creative and intelligent individuals any organisation could wish for. The level of commitment of those individuals is probably even higher than in the for-profit sector, as they are certainly not in the sector for its potential to generate financial rewards. But the proportion of high quality individuals with sound technical and managerial experience is, unfortunately, still very low when compared to the majority of industries in the for-profit sector.
But more problematic than the ability to attract high caliber individuals is its inability to retain them. Because the majority of the NGOs – especially the small and medium-sized ones – operate hand-to-mouth, they not only are unable to properly remunerate their people, but significantly, they are unable to have clear career plans, proper personal development, adequate coaching, and provide the outlook of a sound future. Facing the impossibility of seeing a future with that organisation, staff leave. And generally, the turnover seems to be higher among the more talented ones as they are more employable elsewhere. That is particularly concerning at the mid-management. Whilst salaries provided to more junior staff do not vary substantially when compared to the for-profit sector, the difference becomes wider as the seniority of positions increases. My experience is that the vast majority of NGOs operate with annual turnover in the double digits, generally around one-fifth. As this 20% is concentrated on high calibre individuals, in the long term, this high turnover means a constant knowledge drain and sub-optimum levels of operation. It is important for companies aiming to establish strategic partnerships with NGOs to take this into account and either accept the difficulties imposed by this kind of constant knowledge drain, or try to stop it by working with the receiving organisation to stop the drain.
What I mean by stopping the knowledge drain is not replacing the organisation’s knowledge base with volunteers or staff supplied by the donor. What I mean by stopping the knowledge drain is preventing qualified staff from leaving. A few years ago I worked with a non-profit organisation that received multimillion pound pro-bono work from a consulting company. Although the work provided by the consulting company was very valuable to the organisation, they used it to fill the internal knowledge gap instead of transferring knowledge and solving a more fundamental problem. As a result the grant increased the charity’s long-term dependency on the donor. Furthermore, because the consulting organisation could not provide a permanent set of people (their volunteers were only assigned to work with the charity for a few months), the new comers were constantly needing coaching and settling in from the very few qualified staff that the NGO had, further reducing its ability to tap into its own internal skills. And to make things worse, because they did not know the history of the organisation, the new comers were constantly reinventing the wheel. By the time they were truly adding significant value, they were leaving their voluntary assignment.
The vast majority of NGOs rely at different degrees on the work of volunteers, and donors have to fully understand the potential benefits and risks that this very different workforce poses to the NGO and to any potential partnership between the corporate and the private sectors.
My experience is that, although good work can be done by volunteers when it comes to direct work with the beneficiaries, and relatively good work is done on fundraising when it comes to opening doors to new donors and getting them engaged, the more difficult part of the job – running an efficient organisation – cannot be done on a voluntary or amateur basis. Organisations run by volunteers or inexperienced staff can succeed, but are far less likely to do so when compared to others run by well-prepared, experienced, and fully committed leaders.
After studying the salary differences within the charitable sector, and finding that orchestra conductors and university football coaches have salaries in the low millions of US Dollars, while those leading significantly larger and more complex organisations working with impoverish populations have salaries in the low hundreds of thousands, Don Pallotta, author of Uncharitable: How Restrains on Nonprofits Undermine their Potential, coined the expression ‘curse of proximity’.
Accordingly to Pallotta, “A market approach is allowed within the nonprofit sector when the emotional sympathy for the needy is absent; high salaries can be paid to entertain high society without a question. But the moment the thought of a starving child or a struggling mother is introduced, all the rules change. Images of the needy work against them. Indeed, there's a direct correlation between leaders' nearness to suffering and public outrage over their compensation. If you're conducting Mahler's 5th, no problem. But if you're trying to end poverty in Malawi, watch out. The situation is seen as a zero-sum game, in which any money going to the professional is money being taken away from those suffering. (…) It doesn't occur to us that the presence of a better, more highly paid professional may generate more money to the cause and to the people in need.” [1]
His argument is undeniable: salaries of leaders in the NGO sector are not only dictated by impact, experience required, risk, stress, revenue improvement or growth prospect, but also by the type of, and the proximity to,beneficiaries. Donors will find it morally justifiable to pay a notably higher salary to a museum curator, an orchestra conductor or the leader of a think tank, but will find it difficult to accept that someone running organisations working with poor beneficiaries can have a salary on the same level, despite the fact they are probably running organisations with incredibly larger budgets, more complex operations, greater numbers of beneficiaries, providing more life-or-death services, and with greater global presence. Whether the reason is actually the curse of proximity identified by Pallotta, or whether it is because donors might perceive the first group of services as a transaction from which they benefit directly, whilst the second is a ‘sunk cost’ from which they do not derive personal benefit, we don’t know, but there is certainly a strong correlation.
The problem is that, regardless of the reason, a significant part of the social enterprise and charitable sectors grossly underpay their staff – especially those in more senior positions – when compared to other parts of the charity spectrum and the corporate sector. That generates a series of consequences that any organisation willing to establish strategic relationships need to understand and take into account before deciding to invest on philanthropy.
The first problem is the difficulty charities face in attracting high calibre individuals. As Pallotta identified, “when a business wants to acquire a leader it offers a compensation package higher than what its competitor is paying to lure the person away (…) For-profit businesses set their sights on who they want and pay to acquire them. By contrast, it wouldn't occur to the humanitarian organisations to set their sights on the kind of leaders they would want if they gave themselves permission to dream a little bit — superstars with breathtaking track records who could quadruple their size in five years. Rather, nonprofits sets their sights on a pay range designed to ensure that it attracts no one worth any more money than any of its peers and then sorts through the available candidates (…) Is it any wonder then that the number of nonprofits that have crossed the US$50 million annual revenue barrier in the four decades since 1970 is 144, while the number of for-profits that have done so is 46,136?” [2].
That is not to say that the sector has no high calibre and highly committed individuals: it clearly does have some of the most creative and intelligent individuals any organisation could wish for. The level of commitment of those individuals is probably even higher than in the for-profit sector, as they are certainly not in the sector for its potential to generate financial rewards. But the proportion of high quality individuals with sound technical and managerial experience is, unfortunately, still very low when compared to the majority of industries in the for-profit sector.
But more problematic than the ability to attract high caliber individuals is its inability to retain them. Because the majority of the NGOs – especially the small and medium-sized ones – operate hand-to-mouth, they not only are unable to properly remunerate their people, but significantly, they are unable to have clear career plans, proper personal development, adequate coaching, and provide the outlook of a sound future. Facing the impossibility of seeing a future with that organisation, staff leave. And generally, the turnover seems to be higher among the more talented ones as they are more employable elsewhere. That is particularly concerning at the mid-management. Whilst salaries provided to more junior staff do not vary substantially when compared to the for-profit sector, the difference becomes wider as the seniority of positions increases. My experience is that the vast majority of NGOs operate with annual turnover in the double digits, generally around one-fifth. As this 20% is concentrated on high calibre individuals, in the long term, this high turnover means a constant knowledge drain and sub-optimum levels of operation. It is important for companies aiming to establish strategic partnerships with NGOs to take this into account and either accept the difficulties imposed by this kind of constant knowledge drain, or try to stop it by working with the receiving organisation to stop the drain.
What I mean by stopping the knowledge drain is not replacing the organisation’s knowledge base with volunteers or staff supplied by the donor. What I mean by stopping the knowledge drain is preventing qualified staff from leaving. A few years ago I worked with a non-profit organisation that received multimillion pound pro-bono work from a consulting company. Although the work provided by the consulting company was very valuable to the organisation, they used it to fill the internal knowledge gap instead of transferring knowledge and solving a more fundamental problem. As a result the grant increased the charity’s long-term dependency on the donor. Furthermore, because the consulting organisation could not provide a permanent set of people (their volunteers were only assigned to work with the charity for a few months), the new comers were constantly needing coaching and settling in from the very few qualified staff that the NGO had, further reducing its ability to tap into its own internal skills. And to make things worse, because they did not know the history of the organisation, the new comers were constantly reinventing the wheel. By the time they were truly adding significant value, they were leaving their voluntary assignment.
The vast majority of NGOs rely at different degrees on the work of volunteers, and donors have to fully understand the potential benefits and risks that this very different workforce poses to the NGO and to any potential partnership between the corporate and the private sectors.
My experience is that, although good work can be done by volunteers when it comes to direct work with the beneficiaries, and relatively good work is done on fundraising when it comes to opening doors to new donors and getting them engaged, the more difficult part of the job – running an efficient organisation – cannot be done on a voluntary or amateur basis. Organisations run by volunteers or inexperienced staff can succeed, but are far less likely to do so when compared to others run by well-prepared, experienced, and fully committed leaders.
1 Don Pallotta.Executive Compensation, Charities, and the Curse of Proximity. 14 January, 2010 (http://goo.gl/xYXy)
2 Don Pallotta. Compensation Should Be Aspirational. 21 January 2010 (http://goo.gl/jSSL)
2 Don Pallotta. Compensation Should Be Aspirational. 21 January 2010 (http://goo.gl/jSSL)
The author, Gus Romano, is a partner and co-founder of Quanta Corporate Citizenship
