Nonprofit University

The most amount of money for the least amount of work

Recently, I’ve been brain kneading (the visual I have as my brain works over an issue—the repetitive process of kneading bread, bringing it up to fold it over only to push it down and turn the dough a quarter to go through the same motion, over and over until the dough is ready) this whole issue of compensation in the nonprofit sector, piqued (or was it peeved) by the recent report saying that younger employees are looking to nonprofits for the same kinds of benefits and perks found in the corporate world. Combine this with the clear schooling I got from the class on nonprofit management that I’ve been teaching in La Salle’s MBA program—which was “everyone wants to make the most amount of money for the least amount of work”—and I knew it was time for this old dinosaur to pack it in.

And then I get a call from a reporter wanting to know if a practice that Scripps and some other universities and research institutes are using is a national trend. It seems that Scripps is offering mortgages (my assumption is low-interest, if not interest free) as an incentive for their top recruits to settle with them in Florida. A national trend? I wouldn’t say so. But a practice that colleges, universities, hospitals, and other large nonprofits have been using for quite some time? Absolutely. If you are a hot commodity and the nonprofit has the pockets deep enough to offer for-profit- like perks, why shouldn’t you and the nonprofit go for it?

Well, there is the rub, no? The mere fact that the reporter knew that some folks would undoubtedly raise eyebrows over this practice by a nonprofit says it all. Nonprofits aren’t supposed to reward like the big guys. But, what if you are a big guy? And you have the resources? And you want to get the best and brightest in whatever the field is to come and do what the best and brightest do, and do it for your nonprofit organization? Why shouldn’t you be able to do that? It isn’t the situation described to me by the other reporter who called me this week wanting to know what the “expert” response would be to the executive director receiving almost $100,000 in total compensation in an organization with a total budget a bit over $400,000. (Yes, that is a problem.)

It is not nonprofit versus for-profit. It is not what we are paid, but what we are paid in relation to the work that we actually do. This is true of for-profits and nonprofits alike. If a nonprofit research institute hires a scientist who ends up finding the cure for multiple sclerosis, who, pray tell, would begrudge—or even question the return on that investment–that scientist an interest-free mortgage? Do we begrudge all of the senior managers in for-profits their Blackberries? And there are a lot more senior managers walking around with free Blackberries than there are nonprofit employees walking around with interest-free mortgages.

People: let’s move on!

  Earlier this week, we hosted our first session explaining the new IRS Form 990 to nonprofits.  Have you ever seen a group of deer in headlights? 

Not a pretty sight. Nor is it going to be a pretty sight to get your board ready to answer all of its pages of questions with the “right” answer, and answered honestly.  After all, it is one thing to answer a question “yes” with a yes that means, “Yes, we have a policy.  We think we know where it is.” And quite another to answer a question, “Yes, we have a policy, we actually not only use that policy on a regular basis, we review and update it as needed.” 

To complete the new Form 990, you could get away, to a very great extent with the first yes; but to do your organization true justice, you should be answering with the second yes. Which brings me to the real point of my rambling.  The IRS does not know nonprofit best practices for management and governance, but it drafted, got lots of feedback, and finalized this new Form 990. 

Finally, please learn - and as soon as possible - what is expected of you under the new Form 990.  Right now there doesn’t appear to be an IRS imposed penalty if you give the “wrong” answer.  But don’t be fooled by the statement that there isn’t a right or wrong answer.  If you are given the option of yes or no, there is clearly a best or right answer. 

In the short life of this blog, I have hit often on the message that nonprofits must be more business-like in their operations. And though as I write or think that phrase I generally am referring to finances, human resources, and overall management, I also include customer service. And just as many businesses could take a page or 10 from Disney’s and Nordstrom’s customer service books, so could many nonprofits, particularly those larger ones.

Two diametrically opposite experiences last week have me going on this. I met with a group of women who were all working in local community resource centers, helping clients gain access to emergency funds to prevent utilities shut-offs. They told stories of being called liars and other names, being yelled at, and much more, all while they were trying to help. And the response of these women was to go well beyond what they “had” to do as they provided the explanations that others before them should have provided, encouraged getting budgeting help and where they might go for such help, corrected misunderstandings, and so, so much more. All while barely making enough themselves to keep their utilities flowing and working in offices that were, to say the least, less than plush. But without even going to Disney Institute (which their organizations never could have afforded), they understood what should be done.

Switch gears: large—and I mean large—organization: plush offices, great location, nice salaries, the rich and famous begging to be on its board (as opposed to how it generally happens: boards begging folks to serve). I finally renewed my membership in this organization after years away (realizing as I did why I had lapsed) and was unable to get the website to cooperate in giving me the benefit which was the sole reason I re-upped.

I sent an e-mail to the Membership Office expressing my frustration and dissatisfaction, only to receive an e-mail telling me to go to the website to order my tickets. I wrote back and said I’d tried their suggestion several times and that their right response should have been to solve my problem and let me know that my tickets were waiting at will-call. Perhaps they should use some of those unrestricted dollars from their membership revenue to send a few people to Disney school.

As we seek to make ourselves more business-like, let’s selectively take what is good from the business world rather than swallow it whole. Let’s take what they consistently do well, or better than we do in the nonprofit sector, and keep what we do better, what, in many people’s eyes, we are known for. Let’s us not forget that we are supposed to be the sector that works on behalf of the public good, and thus must value that public as much as we can–even more than our own convenience.

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To most, if not all, in the nonprofit sector, September 11^th was doubly devastating. There was the sense of horror, loss and disbelief that everyone in this country suffered. And later there was the fear for the health and well-being of their own nonprofits. Would it survive? Would donors be willing to give to 9/11 efforts as well as the organizations they had given to before? Would they, depending upon their mission, be able to handle the increase in demand for services as people tried to cope, or the loss of demand as people hunkered down in their offices and homes? Would the sky really fall?

For some, the sky did fall. But post 9/11 analysis revealed that to the extent the sky fell, it was due to the economy tanking and not 9/11. Despite the fact that this news came out fairly quickly, we saw a 9/11 effect on the behavior of nonprofit employees. They hunkered down in their offices, afraid to come out, afraid that the organization would somehow fall apart at best, or at worse, disappear, if they left. And in so doing, they missed the very opportunities they should have been out seeking.

The Nonprofit Center’s 2005 Nonprofit Wage and Benefit Survey for the Greater Delaware Valley, revealed that 82% of the responding organizations pay for professional development “when funding allows.” Eighty-six percent pay for attendance at professional conferences (one source of professional development), again when funding allows, and 69% pay for professional memberships (another source of professional development), again, you guessed it, when funding is available. Read “when funding allows/is available” as so long as economic times are good. It is safe to say that it is “common fact” that professional development lines in budgets are the first to go at the first sign of tight financial times.

Is this the wisest response? Or, is this the classic response of nonprofits who don’t understand the basic business principles of it takes money to make money and return on investment? Though Ben Bernanke tells us we are not in a recession, everyone else with any financial savvy says we are. But this is not the end of the world. Not only is it not the time to retreat, it is the time to push forward. Seek new ideas, reinforce skills and develop new ones, build networks and collaborations, buy the loyalty of your employees. Now, more than ever, is the time to be an open, flexible, learning organization.

The sky is not falling, nor will it. Unless you let it.

Do as I say, not as I do. Is that the message executive directors are sending the rest of the employees and the board of the organizations they lead? Our anecdotal evidence has me worried.

After many months of market research and planning, The Nonprofit Center launched Executive Director University (EDU) in March. EDU is designed to meet the call that we heard from executive directors: “we want to learn in groups of just other executive directors and we want topics tailored to our needs, our position in the organization, our challenges.” And so we responded by creating EDU. We built it, and so far very, very few have wanted to come. What is this all about?

Peter Brinckerhoff, who will be the keynote speaker at The Nonprofit Center’s Annual Strategies Forum in June, recommends at least 40 hours of professional development annually. Wouldn’t it be wonderful if we were all doing that! But alas, the reality of nonprofit budgets as they are currently developed do not provide for that. Nevertheless, plenty of executive directors are investing in professional development—but for the other employees in the organization. And of course, we’re all for that. As Brinckerhoff says, “A stewardship organization knows that lifelong learning results in innovation, continued excellence, and effective mission provision.”

Our workshops on all different aspects of fundraising are packed, if not sold out. Yet our workshop last week on “Maximizing the Executive Director’s Role as a Fundraiser” had to be cancelled because only three executive directors signed up. Do executive directors all know how to maximize their role in raising funds on behalf of the organization? Have they learned from a fellow executive director who has raised funds for both large and small organizations? The week before we also cancelled the class on “Legacy and Succession Planning” because no one enrolled.

Executive Directors, hear me: it is inevitable that at some point you will be leaving the organization that you will have invested heavily in for some period of your life. Do you not want to leave the organization in the best shape possible? make the transition for your successor as smooth as possible? Give the organization the greatest chance of not missing a beat when you step down and someone else takes over? Perhaps the other staff who you supported to come to the financial management workshops, the fundraising workshops, the supervision workshop, will keep the organization afloat while the new executive director figures things out.

And while I am at it, is it any wonder that your board thinks it knows it all and won’t consider engaging in its own professional development? It is simply following your lead.

Now, don’t get me wrong. I have a deep appreciation of the demands that nonprofit EDs face and I personally understand that professional development comes in many forms. There are those of us who find it in the stack of books next to our beds. There are others of us who find it via peer-to- peer-learning, or a coach or mentor, or a longer list of options. But the point is we need to be constantly engaging in developing and refreshing—and perhaps most importantly of all, modeling.

“Lifelong learning is an area where you have to lead in both word and deed. First, the organization needs to value continuing education in its budget, in its personnel evaluations, and in its board and staff meeting. You, as a steward need to attend training of varying types, ad then report what you’ve learned to others…”
       -Peter C. Brinckerhoff, Nonprofit Stewardship: A Better Way to Lead Your Mission-Based Organization

One of the positive things about writing a blog is that it gives the author time to stop what she is doing, sit back and, OMG, think and reflect. For those who read blogs and respond, (and the response is the critical part here), the same thing is true: you sit back, contemplate an issue, form a response, and share it with the world. Giving oneself permission to stop work (that is, doing your share to deliver on the mission of the organization) to cogitate is something too. Too many people in the nonprofit sector see as a luxury when, in reality, it is truly a necessity.

As a college professor, I have always harangued (at least I’m sure that is how the students hear it) my students to think. I have promised them from the first day of class of every semester that I am not going to teach them what to think but how to think. And while there are plenty of professors around who see it as their jobs to teach students what to think, the majority seem believe that their real job is to equip students with the tools for being independent thinkers. But, increasingly, I find myself asking why? If upon graduation and joining the workforce people start to see pondering and musing as something that impedes their ability to get their jobs done, then why bother?

I was recently reminded of the Myth of Sisyphus, and Sisyphus’ task of rolling the boulder up the hill each day, only to have it roll down the hill each night. Although Jackson Browne’s song The Pretender is about so much more than the Myth of Sisyphus, I have always associated the line, “Get up and do it again, Amen” with Sisyphus. But never with the nonprofit sector. Those of us working in that sector are not supposed to feel drudgery in going into work, but rather joy. But I’m hearing the drudgery creep in to more and more people’s voices. And I think I know why.

Yes, it has to do with the fact that nonprofit employees are, by and large, overworked and underpaid. But that has always been the case. So, what is new now? My answer? We have sent the message, mostly obliquely, that thinking on the job about the job is not allowed; only doing the job is. We have robbed employees of the time to deliberate, ruminate, meditate, etc., on the key questions of their work: how could it be done better? Should we be doing it this way? Or at all? And the list goes on. Organizations have relegated strategic thinking to a periodic possibility, something that comes out only in the course of doing strategic planning. The reality is that strategic thinking by staff (and board) needs to be a pervasive, constant and cherished component of every nonprofit.

I think, therefore I am.

     Last week, Harvard Law School announced that it would start paying the tuition of third year law students who promised to work in government or for nonprofits for five years post graduation. Apparently Harvard heard that the nonprofit sector isn’t attracting folks like it once did, and surmised that graduating with only $82,000 in debt (as opposed to more than $123,000, which would be the current cost of paying for all three years of law school) might make it easier for those inclined to public service.

But let’s not lump the government in with nonprofits. Anyone familiar with the salary scales of both government and most nonprofits must know that the pay scales are not comparable. It will be far easier to pay off $82,000 in debt and still have a life (being able to afford things like food, clothing and shelter, transportation and a even some spending money for fun and relaxation) working for in government than working for a nonprofit. Especially if these law school graduates end up in the “typical” (by which I mean the majority) nonprofit that has a budget of less than $1million and 2 to 5 employees.

According to The Nonprofit Times 2007 salary survey, the average salary for an executive director of an organization with a budget between $500,000 and $999,999 was $77,737, while the average salary of the executive director of an organization of $500,000 was only $58,474. But how frequently will new law school graduates be hired as executive directors? Perhaps if the person has prior work experience or the board is blinded by a Harvard law degree, but barring that, not very often. And as you can imagine, salaries for other positions are substantially lower. Thus, in essence, we have consigned the law school graduate inclined to work for good to indentured servitude.

Surely there must be a way to allow those people who are interested in both individual and social betterment to gain post-secondary education and graduate and apply that knowledge to the nonprofit sector, without enlisting in life-long debt. Harvard has taken a good first step. Others must step forward with bolder proposals that will ensure a talented and equipped pool of workers eager to apply their knowledge and passion to enriching the communities in which we live and work.

I’m taking advantage of the fact that today is Good Friday to talk about good—not in a religious context, but in the context of its meaning as virtuous, right, commendable.

Goodness seems to come in all shapes and sizes in our society. It comes in writing the large check and in dropping a few coins in the donation box at the check-out counter. It comes in volunteering once a year on a special day and in a once a week commitment of several hours for a tutoring session, or dropping in on an elderly or disabled neighbor. And it comes in choosing to work for a wage in the sector that is thought to do good. Each of these is an example of doing good, for an individual, our community, our society. All of this is wonderful, and none of it is enough.

As a society, are we doing enough to encourage all people to give of their time and their dollars to do good?

 We live in a world where double standards are the accepted norm. As a society, we are slowly working on redressing certain double standards, as in race and gender. It’s time to call attention to an enduring double standard for for-profits and nonprofits.

We hear again and again that nonprofits are businesses and they should be run as such. I couldn’t agree more, but with a few caveats, such as tempering our bottom line with our mission and having to raise some of our income via fundraising. Both of those, however, are totally doable within the business model. So, if we all agree that both for-profits and nonprofits are businesses, why is there the double standard when it comes to expectations of how each will run?

I’m a standard bearer on the importance of being excellent stewards of other people’s money. When you raise dollars in exchange for a promise of doing good, it is fair to expect that the recipients will not be frivolous with that money. But, is this any different from giving a for-profit business money in exchange for a tangible product, such as a box of cereal, a pair of sneakers, or a medication? Shouldn’t we, in both cases, have the expectation that the organization receiving that money will not be wasteful with that money?

Why is it okay for a for-profit company to use the profit made from the sale of shoes in the first quarter to buy handmade mahogany furniture for the CEO’s executive secretary, but the executive director of a nonprofit should be grateful for the donated desk from a family downsizing its home? Why is it okay for some for-profit companies to get the latest and best in technology each year, while nonprofits, who are still not even networked or have web access, struggle to find donors willing to help them gain the infrastructure support they need to deliver their programs? When we buy that pair of shoes, the price tag doesn’t come labeled: $50 for shoes, $10 for the electric bill, $30 for new desk, but, in essence, that is what that $90 dollar price tag is all about.

But nonprofits trying to sell their pair of “shoes” must detail that price tag: $50 for food to feed the hungry, $10 for the electric bill, $10 for new furniture, and hope that donors will be willing to pay the full freight. But, as one of my graduate students said, “I don’t want to pay the electric bill. I only want to feed the hungry.” Does he understand that the lights must be on in order for that soup kitchen to serve meals to needy people? Absolutely. But he doesn’t want his dollar paying that bill; he only wants his dollar to buy the food being served.

It’s not uncommon to read an article that identifies the compensation packages of the region’s highest paid for-profit executives. When some of us see those numbers, we give a nod to the benefits and rewards of capitalism. Others of us read those articles, see those numbers, and are appalled that one person makes so much money. But how many of us think, “I’m not going to buy any more of that company’s products because I don’t want to pay for that CEO’s penthouse?”

And then there’s the annual story about the salaries of the heads of large nonprofits. When the last such story came out in 2007, one of the people at the top of the list was the president of WHYY, one of the region’s public radio stations. Shortly after the article, WHYY was doing its annual fundraising drive. An area nonprofit had signed up to cover the phones during a period of the fund drive, but when the board got wind of the salary of the head of WHYY, they pulled out, saying that their organization would not help to pay for what they saw as an outrageous salary. And this one nonprofit board was not alone.

Competitive salaries and compensation packages are a way of life in the for-profit sector. Why? Every company wants to woo the best and the brightest. Shouldn’t that include nonprofits? Our employees, too, want smart, bright colleagues, as well as nice offices with the latest technology, health and retirement benefits, a living wage, professional development opportunities, and so on. We all want the same things because we understand that running a business requires, among other things, investing in our most important commodity—our people. But why, then, is one sector—the nonprofit sector—criticized for and hampered in trying to achieve that goal?

Let’s be real here. For-profits fund their businesses in a very similar manner as nonprofits. The latter, however, is required to be absolutely transparent about it while the former, well, not so much.

Nonprofits, as noted above, must give you the option of picking and choosing which part of our business you wish to fund. For-profits don’t: we can’t elect to pay for the meal, but not the chef’s salary. We can’t elect to pay for the shirt, but not the labor that went into making the shirt. Because to do either would be absurd, correct? Everyone knows that if the laborer doesn’t get paid the shirt doesn’t get made, so of course we understand that a share of the price of the shirt includes a fee for the laborer. Then how come everyone doesn’t know that if the electric bill isn’t paid the hungry don’t get fed, and that, therefore, a share of the price of feeding the hungry must go to pay the electric bill.

If I could bust all of the myths and misperceptions that Americans hold about nonprofits, I’m not quite sure where I would begin. The one about nonprofit employees not needing to make a decent salary? The one about us being expected to work in the seediest of office environments? The one about nonprofits not having to make money? Now that’s a really good one.

But the one that has me all roiled up is the one that nonprofits waste money. Waste suggests frivolous expenditures. Offices, for example, that are so far removed from “not seedy” that they rival the poshness of the most opulent corporate offices. It suggests flying first class when you could easily fly coach. It suggests five color printing when two colors would have done the job. That’s waste. Have I seen this in the sector? Absolutely. But truth be told, and you who toil in the nonprofit sector know this to be true, it is absolutely the rare exception, not the rule.

And just to clarify: waste is not fraud. What may be judged as wasteful can theoretically be done on behalf of the betterment of the organization: a better image, a reward for the staff, etc. It may be unethical, but it is not illegal. Fraud, on the other hand, is both unethical and illegal, and is done for the betterment of the individual(s) committing the fraud: art for the walls of the second home, a speed boat, limo rides and luxurious trips, a laptop for your child, a padded personal bank account for whatever the current whim dictates, etc. But, again, truth be told, fraudulent behavior is the rare exception, not the rule.

So, where is this misplaced perception of waste coming from? If we look at the report released last month by Ellison Research in Phoenix, the majority of Americans believe nonprofits waste money simply by running their organizations. Ellison’s survey of 1,000 adult Americans found that 62% of these adults believe that nonprofits spend “more than what is reasonable on overhead expenses such as fundraising and administration.” Excuse me, but expenditures for fundraising and administration are called running our businesses.

Now, please don’t get me wrong: I am the first to say that as nonprofits asking others to give us money in exchange for a promise that we will “do good, ” we have a serious obligation to use that money extremely wisely. But it is wise to run our organizations well, to hire the best and the brightest staff, to provide them with the supports they need to do their work, to spend money to make money, etc. I thought these were the mantras of all good businesses. Not to waste or defraud, but to use money wisely in pursuit of the organization’s mission.

According to the Americans surveyed in the Ellison study, the “reasonable” (and the study clearly states people were asked reasonable, not ideal) amount of money nonprofits should spend on overhead should be $.224 out of every dollar, compared to the $.363 on the dollar that people reported they thought nonprofits spend. (Thus the perception of waste.) How many of these people have ever run a nonprofit and know what it takes to do so?

Do they know that it takes more money, for example, to start a development function than to sustain one? Do they know that the amount of money you spend on overhead is likely to increase when you are involved in a capital campaign, or experiencing a growth spurt in your organization? Do they understand that more and more nonprofits are developing competitive compensation packages for employees? Do they understand that larger organizations may be able to bury their overhead costs in program costs more readily than smaller ones? And do they understand that because of this ridiculous emphasis on the idea that there is such a thing as a “right” or “correct” percentage of a dollar that should go for administration and fundraising, many nonprofits have become very creative at allocating those costs into program costs, just to keep that overhead ratio looking “reasonable”? Do they understand that by focusing on an arbitrary distribution ratio they are, in essence, “encouraging” nonprofits to engage in subterfuge? to be less than transparent? perhaps less than fully trustworthy? But the perception will be better!

Do they realize that by deciding that a random ratio—a ratio that is built not on particular information but on an uninformed call of what is reasonable—makes an organization less than trustworthy, they have created a self-fulfilling prophecy? That totally trustworthy organization, accurately reporting its overhead expenses, becomes untrustworthy as it works to report its financials to fit the magic formula.

And now the perception has, ironically, become the reality. Please, let’s bust that myth.