Over on the @HBR blog last week, #Dan_Pallotta kicked off an interesting debate with his article “You Should be Able to Get Rich in Charity”. The dialogue that emerged through the comments (in which I participated) makes for fascinating reading. Check it all out: (http://blogs.hbr.org/pallotta/2011/09/you-should-be-able-to-get-rich.html) and keep reading to find out why I think there’s truth behind Dan’s provocative title
Upon reflection, we seem a little stuck in the dichotomy of sub-market wages versus outsize executive pay. Philanthropists balk at paying high salaries to the leadership of #non-profits and social enterprises, and in one sense, they’re correct to do so. What matters though is not necessarily the salaries of top execs, but the ratio of the highest compensation in the organization to the lowest. Cap the ratio (we set ours at 15 to 1) – if you want to pay yourself more, you will have to pay everyone else more too. An Executive Director of a non-profit earning 300x what a junior staffer makes generally wouldn’t meet my standards of equitable and reasonable compensation practices – even if we’re talking a salary of $60k versus $20k. You’d be hard pressed to meet your basic needs (like housing and food) on $20k in most US cities, much less construct a decent and stable middle class lifestyle.
It’s neither fair nor equitable to ask people to try to get by on sub-market compensation because they want to do something constructive for people and/or planet in their professional lives. I don’t know about you, but my goal is not to make the poor and disadvantaged a little less miserable, it’s to help make everyone better off. And by better off, I mean continuously improving measures of socio-economic well-being across all social classes.
Returning to Dan’s “Get Rich” article, I would note that I object to the word “rich”, but am in agreement with his basic proposition for four main reasons:
1. A Living Wage should cover Life, Liberty AND the pursuit of Happiness: If we want economic growth, our general definition of living wage needs to include enough beyond the cost of basic needs to permit capital accumulation. Sound dirty? Capital accumulation = savings =investment = engine of economic growth, or at least, that was one of my take-aways from Econ 101. If we don’t insist on true living wages for social sector work (and yes, this does include teachers!), we are (a) actively harming our do-gooders; and (b) preventing them from saving toward retirement, the kid’s college funds, starting a small business or #socent etc. etc. Can you truly be an ethical philanthropist or impact investor if you are harming one group of people to help another? Why do the ends justify these particular means?
2. The Birth of Impact Investment means Greater Value Creation & Outcome Metrics: The intersection of “social good” and “economic good” is moving closer in public and private markets (ESG, SRI, impact investment, commercial #microfinance). Increasing numbers of non-profits, technical assistance providers (aka consultants) and social financiers are beginning to create serious monetary value through their efforts – usually after long and difficult periods of time. Industry standardized outcome metrics will make it easier to match compensation to value generated, if we want to do so.
If you can sell your skills in VC, PE or I-banking for $500k p.a., why should you work for $100k in a non-profit? If the non-profit sees your economic value as $100k, then take the $500k job and give 20% of your salary to the non-profit as a donation. You’re better off and the non-profit gets the same $100k regardless, right? Yes and No. The problem is that few of the people with those skills, talents and passions are willing to work for that $100k, so the non-profit won’t be able to achieve its goals as effectively or efficiently. If it were “best practice” for non-profits to pay a bit more, offer good health, retirement and professional development efforts, it would go a long way to fixing the human capital shortage and brain drain in the social sector. Can you seriously define these conditions as “pursuing personal gain”?
3. We Know How to Value Jobs and Organizations: In the century or so since Frederick Taylor brought science to the art of management, we’ve learned a lot about how to develop valuations for both people and firms. I’ll accept that many for-profit firms are focused on profit maximization and their school of thought believes that monetary incentives trump all else. It may not be appropriate to pay a lawyer in a non-profit the same salary as a partner in a law firm. But is it smart to pay the non-profit lawyer less than a first year law firm associate makes?
If you still think it’s okay to pay people in the social sector less than their economic sector peers, be really transparent about it so that the trade-offs are clear. Tell people that you know market salary is X and your intention is to pay 50% of X. At least they’ll know where they stand! Of course, you might also want to tackle the question of whether the non-financial value the position provides is really equal to that other 50%X. If my multiple-bottom line in #impactinv includes both financial and social returns, its not unreasonable to think that I might choose a combo of financial and economic compensation as a professional.
4. Time is Money: Money can buy you time, thereby letting you increase productivity. One of the reasons that microfinance works is that having a branch in her neighborhood can save a micro-entrepreneur a half day or more of travel to the nearest market town with a commercial bank (not that the commercial bank necessarily wants our micro-entrepreneur as its client, but that’s another story). That means a two days extra income over a typical loan cycle, plus the bang for the buck you get from your loan (by buying wholesale instead of retail, upgrading tools and equipment, etc).
The worker who replaces a 2 hour bus commute (ever been on one of the “Combis de la Muerte” in Peru? Minibus of death….) with a 40 minute motor-scooter or car ride gains almost 1.5 hours per day each way for other personal and professional activities. That’s an extra 60 hours per month. A worker making $0.50 per hour earns roughly $80/month. If that worker took a second job with the extra 60 hours, that would translate into additional income of $30/month – or an extra $30 of time dedicated to family, community and work. If working for sub-market compensation means that people can never hope to save for something as simple (to us) as a motor-scooter or car, we as a society are are going to lose out.
The Law of Comparative Advantage applies here too. I’m not good at keeping house; it takes me a long time to produce mediocre results. There are other things – like social impact investment – that I do really well. It makes sense to me to pay someone to come in and clean every other week, freeing a nice chunk of time for me to do things that make more effective use of my stronger skills. Plus, I’m contributing to job creation and stability.
So, is it okay to get rich in charity? The top 400 Americans earn more than the bottom 150 million American COMBINED. If you land in that top 400 from your non-profit work, something’s wrong. If we’re talking about reaching retirement age with enough in savings to live comfortably and perhaps even start a new business, bring it on! We shouldn’t ask those who dedicate their life to the greater good to become martyrs. And it seems unlikely to me that we can tackle the problems of income inequality and poverty if our do-good efforts contribute to greater income inequality and below par living conditions for social sector workers. To borrow from the Hippocratic oath, First do no harm!