32 Theses About Nonprofit Compensation

  1. Nonprofit work is hard work. It is complex, adaptive work where the answers are not known in advance — we have to invent them as we go. Most nonprofits are tackling huge problems with few resources and many face deep-pocketed opposition.
  2. Nonprofit work is long-term work. The problems we’re working on — climate change, inequality and injustice — didn’t emerge overnight, and we’re not going to solve them in a couple of years.
  3. Because nonprofit work is hard, long-term work, the nonprofit sector needs to attract the most talented people we’ve got — and keep them around long enough for them to become wise and masterful practitioners.
  4. The skills and talent nonprofits need to solve big social problems are complex . We need to be able to draw in people with a broad range of experiences, skills and talents. Failure to do this not only hurts us tactically, it limits us strategically.
  5. Right now, access to wealth — inherited wealth, earned wealth from a prior career or spouses/partners who are the primary breadwinners in their households — is often an implicit filtering criterion for long-term nonprofit employment. This perpetuates and deepens the structural racism and inequity in our society, even as we say we are working to eliminate it.
  6. The student debt crisis is a huge, largely unacknowledged talent problem in the making for the nonprofit sector. While many millennials are drawn to mission-based work, their student debt will prevent them from entering the sector, or ensure that their stay here is short.
  7. The skills that it takes to build and sustain a successful and effective nonprofit are becoming more varied.
  8. Because of the explosion of nonprofits — and the immediate accessibility of a global audience afforded by the internet — nonprofits must not only be skillful at more things, they must be relatively more skillful at more things if they want to break away from the pack. The bar for success is, paradoxically, rising, even as the barriers to starting a nonprofit are falling.
  9. The skills that nonprofits must master to succeed in the twenty-first century are rapidly converging with the skills that organizations in other sectors must master to succeed.
  10. We can see this most clearly in the area of technology. But it’s not just technology, it’s also finance, leadership, marketing and more.
  11. The rise of mission-based “social enterprise” businesses and B-Corps further exacerbates the nonprofit’s sector’s intensity of competition for talented, mission-minded people.
  12. Nonprofits are therefore competing beyond the sector for talent more directly than ever before and the intensity of this competition is only going to continue to increase.
  13. Nobody expects (or deserves) to get rich working for a nonprofit.
  14. Many nonprofits are (or can be) amazing places to work. People will sacrifice some amount of money for challenge, meaning, flexibility and autonomy.
  15. Despite this, we should not expect nonprofit workers to forgo home ownership, children and a secure retirement in order to work in the sector.
  16. If nonprofits want to successfully compete for talent — and keep good people around for the long haul, they need to pay enough so that money isn’t an issue, then out-compete other employers on meaning, relationships, autonomy and opportunity.
  17. The amount of money that makes “money not be an issue” for the diverse, talented people we need to attract and retain is often more than the median nonprofit is paying right now.
  18. The amount of money that makes “money not be an issue” for the diverse, talented people we need to attract and retain is not insanely large. People who are drawn to and can succeed at the complex, adaptive challenges of nonprofit work tend to have strong intrinsic motivation and are rarely highly materialistic.
  19. There are many roles in nonprofits for which it is believed to be difficult to objectively and fairly evaluate employee performance and/or contribution to either the organization’s bottom line or its mission impact.
  20. Nonprofits rarely cut low performing staff.
  21. Nonprofits rarely if ever pay their top performers significantly more than their median or low performers.
  22. Most nonprofits would rather spend additional dollars growing their team or launching new programs and accept turnover as a “fact of  life” than invest in retaining their best people for the long haul.
  23. Nonprofits rarely account for the full costs of turnover: lost relationships, lost knowledge, lost productivity, damage to morale, etc.
  24. Many of the nonprofit sector’s most highly skilled people eventually are forced to leave the sector entirely or go into private practice as consultants in order to meet their financial needs.
  25. The “consultant-ization” of the nonprofit sector has some benefits (e.g. rapid, flexible team formation, deep specialization, diffusion of knowledge, etc.) but also considerable costs.
  26. While nonprofit culture and management practices contribute to some of the sector’s dysfunctions around compensation, nonprofit board members, donors and funders play a significant role in shaping the sector’s culture and determining how it allocates resources.
  27. The overhead myth, preferences for new programs over proven effectiveness, underinvestment in leadership development, failure to admit and embrace failure — these phenomena all contribute to unhealthy ideologies about compensation in the nonprofit sector.
  28. Nonprofit boards rarely involve themselves in staff salary structures or policies, restricting themselves to setting CEO compensation and perhaps approving incremental increases to the overall salary pool during the budgeting process.
  29. Foundation program officer salaries often serve as an effective upper bound on nonprofit CEO compensation.
  30. Funders rarely reward their highest-performing grantees with game-changing infusions of general support dollars — and even more rarely do they cut their low-performing grantees to free up resources for their high performers.
  31. Many funders are happy to reward effort rather than results. This is closely tied to risk aversion, because big results require big risks and it is often hard to claim credit for long-term success.
  32. There is no silver bullet solution to these challenges, but the nonprofit and philanthropic sectors must work together to open a more courageous conversation if we are to make progress.

The original sin of nonprofit capacity builders

Back in 2011, a few weeks before I left Groundwire (R.I.P.), I was at a nonprofit conference down in southern Oregon. I was delighted to run into Dianne Russell, who runs the Institute from Conservation Leadership. Dianne’s been doing organizational capacity building work in the environmental sector for… well, pretty much forever and has always been one of those people I’ve admired as we worked over the years with many of the same great people and organizations.

So there we were in the lobby, catching up, talking about the weather, our kids, I don’t quite remember. But then out of nowhere, Dianne dropped this idea on me:

“I’ve been thinking lately,” she said (and I paraphrase slightly), “that we capacity builders have really screwed up. We’ve systematically miseducated funders about the true cost of doing the work.”

I swear that the clouds parted and a great beam of light shone down on us. (Never mind that we were indoors.) I heard the clap of thunder, but maybe it was just the sound of my jaw hitting the concrete floor.

I picked it up and said, “Oh, wow. You are… totally… right. I never thought of it that way before. How come I never thought of it that way before?

In an instant, I flashed through all of the ways I’d failed at pricing over 15 years of doing mostly-below-market-rate technology and communications consulting to environmental nonprofits:

  • Giving work away for free: FAIL. very few clients truly value what they’re not paying for, and a price of “free” makes it really easy to fail to invest in making new tools and knowledge sustainable.
  • Charging meaningful but “below-market” rates: FAIL. This is a more subtle way to fail. When you charge a meaningful amount, clients have “skin in the game” and that’s good. You have far fewer failing projects. But think back to Econ 101 — if you price below market, demand is infinite, and every unit of below-cost service you deliver is another unit of charitable subsidy you have to raise. So, while each project is great and your clients love you, you are digging a hole to hell with your good intentions.
  • Charging “the low end of market rate:” NOT A TOTAL FAIL, BUT DANG HARD. Here, your clients are happy and you’re not losing money hand over fist, but you’re trapped in the tyranny of the billable hour and the constant struggle to keep staff from being poached by higher-paying for-profits,  etc.

But, despite having experienced all of this failure modes, I hadn’t really thought about how underpricing affects funders — who, along with the nonprofits themselves, are often “the customer” for capacity building services, even though they are not “the client.”

As we tie on our superhero capes and leap into action, we often fail to calculate our true costs. And even more often, we fail to disclose that full cost either to our clients or to our funder/customers. This happens for many reasons, all of them sincere and well-meaning.

We capacity builders, with our zeal to get the work done — after all, there’s so much good work that desperately needs doing — we’re wizards at cobbling together a few bucks here, a few bucks there. And maybe we feel a little bit guilty about charging all that money to do good work.  We’ve usually got at least a touch of impostor syndrome (“we’re not really that good”) so we hem and haw and there are a thousand reasons why we just sort of don’t get around to really showing everyone who’s paying for a piece of our pie just how much the whole pie really costs.

This is all well and good and well intended. The clients are happy, the funders are happy and the capacity builder might even be pretty happy too. But over the not-so-long term, Bad Things Start to Happen:

Even if you’ve been rigorous about showing all your cross-subsidies, the cumulative effect of underpricing is that it affects what funders (and clients) are willing to pay for future capacity building engagements. This is what my economist friends call “price anchoring.” Over time it means that funders (and clients) start to believe that below cost is what it costs and, worse, that’s all it’s worth. This means that if a future capacity builder should have the temerity to charge enough to cover their full costs (including the cost of paying people competitive salaries, not burning them out with overwork, etc.), they are very likely to be told, “Sorry, that’s too expensive. Last time I only paid $BELOW-COST-PRICE.”

Let me be clear: it’s not that clients and funders are naive or that they are trying to abuse us by setting up a race to the bottom. Prices are signals and prices are stories, and our prices are telling lies that have, over time, systematically miseducated our customers (and our clients) about the underlying economic reality of the work.

The bill for this is coming due.

 

What tech skills should mission-driven nonprofits expect all of their employees to master?

What tech skills should mission-driven nonprofits expect all of their employees to master?

The-IT-Crowd-006I’m not talking about what we should expect the “digital” people to know — or the IT staff. These folks are always going to require a deeper set of particular skills that are going to vary greatly depending on their role and the particular organization. I’m asking a bigger and more abstract question: what skills should we expect of everyone who works in an organization trying to make change in the world — from the CEO to the administrative assistants, and everyone in between.

Is it simply enough to expect “proficiency with Word, Excel and Outlook?” Or, in 2014, should we be expecting more?

I think we can and should expect more.

Let’s start by unpacking the notion of “proficiency” with “basic office productivity software.”  There’s more here than meets the eye. Here’s my list of tasks I’d expect someone who has solid “intermediate proficiency” with the basic tools that are essential to modern mission-driven work to be able to perform.

  1. Format a document with style-based formatting, both in a word processor and in a website content management system
  2. Create, share and organize online documents and spreadsheets.
  3. Use “tracked changes” or similar document revision features to collaborate on a document with others
  4. Perform a basic mail merge from a spreadsheet, and be able to translate basic mail merge concepts to online tools such as broadcast email systems
  5. Compose and send a lightly-branded broadcast email message that looks good on a mobile phone
  6. Sort and filter a list in a spreadsheet
  7. Use common spreadsheet formulas to analyze data like SUM, AVERAGE, MEDIAN
  8. Create a simple chart or graph that follows most of Edward Tufte’s rules of good information design
  9. Crop and resize an image for use on the web or in an email
  10. Create a lightly formatted but professional-looking set of presentation slides that are compliant with an organization’s brand guidelines
  11. Set up and use an LCD projector
  12. Host and deliver a presentation online through webinar or online meeting software.
  13. Use text/video chat software like Skype, Google Hangouts, etc. for real-time communication with colleagues
  14. Manage one’s calendar online.
  15. Book appointments with colleagues and partners electronically
  16. Use a password manager to generate and manage secure passwords for online services
  17. Build a simple online survey and interpret the results
  18. Create rules or filters in an email client to organize your inbox
  19. Track tasks with a team using tools like Trello, Asana, Basecamp or Evernote
  20. Export a list of names or other data from one system in CSV format and upload the list into another system
  21. Create and manage an email discussion list
  22. Bonus: design the agenda for and facilitate an effective small group meeting

Bet you weren’t expecting 22 items. (Hey, did I leave anything important out? Leave a comment!)

Seriously: imagine how much more efficient and effective our organizations would be if we could count on all of our colleagues and allies to have mastered these basic skills.

I’m not naive; this is a high bar. Is the solution then to raise our hiring standards? Maybe. When I’m hiring folks, I certainly attempt to gauge how solid their technology skills are. But I realize that there are a lot of smart, bright and capable folks out there who couldn’t tick all of these boxes. That’s OK. College is supposed to teach you to read, write and think — it’s not supposed to be vocational education.

This means that employers need to be ready to train their people in the practical skills they need to excel in the workplace. Part of the job of any social mission organization is to bring in smart, bright and capable people and help them grow. This takes a strong organizational commitment to making those investments — and a strong organizational culture of peer learning. And you can be sure I am looking to hire people who are motivated and ready to learn (and to teach!).

Folks who are already in the social change workforce: you should see mastering as many of these skills as possible as an essential part of your job. These are the building blocks of 21st century social mission work.

Update 7/4/2014: edited slightly to incorporate great feedback from commenters below and on social media. Thanks, keep the feedback coming!

Approaching funders for program-related investments

At work, we helped put on  a great panel session on program-related investments (PRIs) [1] earlier this week. We had a packed house of 80+ folks and they asked a ton of great questions, including one from the CEO of a nonprofit with a revenue-generating social enterprise program: “As a nonprofit, who can I approach to invest in my social enterprise?”

Panelist (and my colleague) Peter Berliner offered the following answer: Foundations make PRIs for the same reasons they make grants: they see alignment between their philanthropic goals and the goals of the social enterprise. Second: they ask, “is it a reasonable business proposition?” So, it makes sense to ask for mission investments from foundations with whom you have existing relationships. Who supports your goals already?

Not only did I think this was a fantastic answer, it was almost verbatim the answer I gave for many years to nonprofits who asked me, “What foundations will be interested in funding my technology capacity needs?”

The old world connects with the new.

[1] PRIs, as the jargon goes, are foundation investments that are designed to yield below-market financial returns and accomplish social change goals.

Three dimensions of transformational leadership

I’ve been thinking a lot about what makes truly effective leaders in the social change sector. There are people who’ve devoted their entire careers to the question, and I don’t presume to their erudition. But lately, I’ve been reflecting on three key dimensions of organzational leadership that have really helped me understand organizations I’ve been involved with over the years.

External relations leadership

External relations is the classic, outward-facing dimension of leadership. It’s the one we often mistake for the whole ball of wax. External relations is about charisma, storytelling and selling the organization to the world at large. It’s a vitally important dimension of leadership, especially in the nonprofit sector, where donors and grantmakers often give based on emotion and relationships. Many nonprofits are founded by leaders who are strong on this dimension of leadership.

Management leadership

This is the internal-facing “make the trains run on time” function. Management leadership is what builds systems and processes; it allows organizations to execute consistently, with excellence and at scale. Few organizations can grow or be successful over the long term without developing strong management leadership. Leaders who are strong at management are often very different personalities than those who excel at external relations–they tend to be more introverted and detail-oriented. Many management oriented leaders are found in COO roles.

In many nonprofits, the top two people are a strong external relations leader and a strong management leader. This can be a pretty effective leadership model for some organizations, and is far preferable to a single CEO trying to perform both roles.

But if we stop with just these two leadership functions, we overlook something critical to the long term health and success of an organization: the leadership function that is focused on taking care of its people.

Nurturant leadership

Leadership is not just about strategy, sales and management, leadership is motivating and supporting people so they thrive and excel. It’s great to have a charismatic leader out front, and a management leader who can build and refine the internal processes. But someone has to be focused on taking care of the organization’s people as whole human beings. This is not an “HR” function; it’s a core leadership function.

Nurturant leadership is this dimension of leadership–and, unfortunately, it’s often overlooked–and consequently one of the biggest barriers to long-term organizational excellence.

Lots of organizations have a strong ED/COO combination providing external relations and management leadership. But these organizations sometimes have a tough time retaining talented staff over the long haul, because they are missing third leg of the leadership stool: a strong nurturant leader.

“But isn’t this the CEO’s job?” you ask. Well, it’s certainly the CEO’s responsibility to make sure the organization has sufficient nurturant leadership. But many CEOs struggle with this leadership function–particularly CEOs who are focused on external relations. External relations leaders are charismatic and visionary, but they are often ineffective at nurturant leadership for several reasons:

  1. Being outward-oriented means you’re out of the office lot. There are so many meetings to go to, donors and clients to pitch, speeches to give. External relations leaders are often on the road so much and in so many meetings with stakeholders that they don’t have the focused time it takes to nurture their teams.
  2. The more visionary and charismatic the leader, the more intimidating they often are. It’s hard to nurture people who are a little bit scared of you.
  3. A certain degree of narcissism often goes with the territory, and while it’s not unhealthy per se, it does tend to interfere with the empathetic demands of nurturant leadership.

Similarly, many management leaders struggle with this as well. When you are focused on building systems and processes, it is easy to slip over the line into caring more about “the system” than the people that must operate within it. Overall, though, I’ve seen a lot more people who are successful management/nurturant leaders than people who combine external relations and nurturant leadership.

The biggest lesson for organizations, though, is to explicitly attend to and elevate nurturant leadership as a discipline co-equal to external relations and management leadership. More on this in a future blog post.

Advice for consultants

Whenever I talk with consultants about their challenges, the conversation almost always results in me saying, “It sounds like you need to raise your rates a bit.”

I’m joining Philanthropy Northwest!

I’m pleased to share the news that I’ve signed on as Communications Director at Philanthropy Northwest!

PNW is the regional association of grantmakers, offers capacity building and consulting services to the philanthropic community through The Giving Practice, and also runs a national network of organizations focused on impact investing called Mission Investors Exchange.

I’m tremendously excited about this opportunity to apply my strategy, communications, collaboration and technology skills in a new set of networks. I’ll be starting on Monday by hopping on a plane to Juneau, AK for PNW’s annual conference–not the most traditional onboarding process, but it’ll be a great opportunity to dive into the deep end of the pool!

I’m jumping sectors a bit from environment to philanthropy, the essence of the work remains the same–building, connecting and inspiring people around social change. There’s enough that’s familiar for me to feel confident I can do the work, and, even better, a ton I’m looking forward to learning from my new colleagues and peers.

See you out there!

Engagement organizing, movement building, politics. And stuff.