Unethical Practice Is Compounded by Unethical Practice
Paying development professionals on commission as if they were car salesmen does not accord well with the concept of a charitable organization.
By Stephen G. Donshik
Most resource development professionals agree with the principle that compensating a professional on the basis of a percentage of funds raised is not only unprofessional but also unethical. Donors who contribute to organizations know that some of the funds go for overhead and administrative expenses: this is the reality of maintaining a voluntary organization. And they recognize that parts of that overhead are the resources expended to develop sources of support, including asking for annual donations and designated donations, writing grants for private funds and foundations, and applying for public support through requests for proposals. You need to spend money to raise money.
Because development professionals, as fundraisers are referred to in the nonprofit sector, are integral to the effort of attaining financial sustainability their salaries are an acceptable expense. Although these salaries are generally commensurate with the amount these professionals are expected to raise – with professionals overseeing million dollar fundraising lines compensated more highly than those at small agencies – usually salaries are not based on a specific percentage or amount that is received during a specific period of time.
Organizations that choose to remunerate development professionals on the basis of the specific results of their efforts risk not only losing donations but also finding themselves in very murky waters. Paying development professionals on commission as if they were car salesmen does not accord well with the concept of a charitable organization. There are very few contributors who would agree to contribute a million dollars if they knew that 10 percent was going directly to the fundraiser as a fee. There is an inevitable conflict between the salaried employee who works within the framework of the organization and the freelancer whose targeting of donations is determined by how much he or she will receive as a percentage.
Surely freelance fundraisers will not tell the person they are soliciting that they are receiving a commission, and the organization will not reflect this in their annual reports or in the ways they use the donation. The size of the donation solicited this way is also irrelevant as far as the principle is concerned. Whether it is $ 1,000, $10,000 or $100,000 that a percentage comes off the top and into the pocket of the person soliciting the funds is unprofessional, unethical, and riddled with conflicts for the organization, the fundraiser, and the donor.
A colleague, who had been seeking employment for many months, recently shared what she thought was good news: she had been engaged by a nonprofit in Israel that is well known and has been in existence for many years. However, the organization did not want to front the funds for her salary so it offered her the position on the basis of a percentage of the funds she raised. The percentages would change as the amount of funds she raised increased. It would begin with 10%, then be reduced to 7.5%, then to 5%, and then to 2.5% for everything raised over $1 million.
She accepted the offer on these conditions and began to make contacts and open doors to prospective donors whom the organization had never been able to reach. She began to raise funds for both existing projects and programs and newly developed ones that had been in the organization’s development pipeline for a while, languishing on the shelf in the development office for a lack of funds.
In some cases the development office had earlier reached out to a number of foundations without success. My colleague enthusiastically accepted the challenge and used her contacts to cultivate both prospective donors and previously approached foundations to consider supporting the agency. Within several months, request for proposals were received and grant applications were submitted. In some cases these were totally new potential sources of income, and in other cases they were from foundations that knew of the agency but had not yet supported it.
The development professional succeeded beyond her expectations and those of the CEO and COO. The amounts of money that were raised enabled the agency to complete capital projects that had been halted because of a lack of available funds and to initiate new programs for its clients. At this point the COO began to raise questions about the compensation my colleague was due to receive. But the CEO reassured my colleague that the agreement stood and that she would receive all the funding that was due her as a result of her efforts.
Two weeks later the CEO asked her to come to a meeting with him and the COO to clarify her compensation. He told her that certain funds that were received came from sources that the nonprofit had contacted before the fundraiser was engaged and that she was not entitled to a percentage of those funds. As far as the CEO and COO were concerned, the percentages outlined in the agreement applied only to new sources of funding.
In the employment negotiations, the CEO and development professional had agreed to only a verbal, not written, agreement that the percentages applied to all income realized from her efforts. However, now there was a different understanding of what was meant by her efforts. Did her efforts encompass all the money raised since she came on staff or only those from new sources? It appears that there was a serious lack of clarity about the terms of engaging the fundraiser; this cloudiness stemmed from the decision by the organization to raise funds by paying a fee based on percentage of the income and by the development professional’s agreement to work on the basis of percentages.
My colleague maintains that the organization is being unethical by refusing to compensate her not only for her efforts but also the results of her work. The organization claims they only agreed to pay the percentages in the contract based on new sources of income that she identified and was able to successfully solicit. The organization refuses to capitulate. And my colleague does not want to continue raising funds for the organization if she is not compensated fairly; she wants to make sure she receives everything that she is entitled to receive.
From a resource development perspective the organization should have never engaged a fundraiser on the basis of the amount of money raised, and the professional should have never agreed to be engaged on the basis of percentages. It is both unethical and unprofessional and has the potential to be highly conflictual from both the perspectives of the agency and the professional. In this case the organization is letting the professional know she can leave if she does not want to continuing working under the terms as it interprets them. The agency is sure it can find another person willing to work under those terms.
My colleague feels caught in a bind. If she leaves, she will be forfeiting what she regards as money she rightfully earned. If she stays she will need to renegotiate the terms of employment, and she is not enthusiastic about continuing to raise money for this agency. She also has to leave under the right terms so she does not become burdened with a negative reputation.
This difficult situation came about because both the organization and the professional refused to maintain a high level of ethical and professional practice. If the agency had decided to invest funds to engage a development professional on the basis of a specific salary as stated in a contract, then there would have been no disagreement over the compensation, and there would be no ill feelings about continuing to represent the organization to prospective and actual supporters. Both organizations and professionals should be aware of this situation and consider adhering to principles of professional practice that protect both sides from encountering similar problems.
Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Nonprofit Management and Leadership Program. Stephen was Director of the Israel office of the Council of Jewish Federations (CJF), 1986-94, and Director of the Israel office of UJA Federation of New York, 1994-2008.