Everyone values the work that nonprofits do. But not everyone values the people at nonprofits who do the actual work.
I’ve repeatedly encountered nonprofit boards that fail to invest appropriately in their single most important resource: staff. I then find echoes and reinforcement of this attitude in the work of charity evaluators. This pervasive disregard for the importance and legitimate needs of staff members is hurting nonprofits and hampering their ability to fulfill their missions.
Roofs are worthy. People aren’t?
Here are a couple of examples of these dynamics, both of which involve policies around endowments.
A small but prominent historic home and museum has a modest endowment. The board consistently votes not to draw anything at all from the endowment for its annual budget, saying that the endowment is there for rainy days, or for an emergency capital need. They are fine with spending the endowment income on a new roof, but not on operational expenses, especially salaries. The board members say, “We don’t need it,” because the organization raises all it needs to balance the annual budget from ticket sales and annual appeals.
The problem is, that annual budget is too small. Staff members at the museum are underpaid, and many of them have extended commutes each day because they can’t afford to live close to the urban center where the museum is located. The staff are doing work they love, but they’re not paid enough to live a reasonable lifestyle. Nevertheless, the board members insist that income from the endowment funds isn’t needed on an annual basis – certainly not for enhanced salaries. They see spending on salaries as transient and wasteful.
A second example is a vibrant youth organization. The organization’s endowment has grown over the years, and the board is proud that it takes only a 3 percent draw each year. Here too, the argument is that “we don’t need the money,” because the organization is meeting the budget without the extra endowment income.
Again, there is a budgeting problem. The organization is having a very hard time recruiting entry-level staff to work with their kids. At a time when Burger King is paying $15 an hour, this organization isn’t coming close to meeting that level for its entry-level hourly employees. The organization is short-staffed and experiencing high turnover. But board members were sure that the extra funds from the endowment aren’t needed.
Balancing current and future needs.
I know a lot of nonprofits that dream of building an endowment. But many nonprofits that have endowments are like the dog that catches the car: They’re not quite sure what to do with it.
Board members at nonprofits routinely cite “prudent investor” standards when talking about managing endowments, and they use prudence (which they hear as “frugality”) as a rationale for taking a smaller-than-appropriate annual draw. That’s a misreading of what the prudent investor standards actually say.
Prudent investment and management of charitable funds requires trustees to balance current and future needs. There’s a simple and elegant way of calculating the annual draw: establishing a spending rate based on a three- or five-year “trailing average.” That means looking at the value of the endowment over the previous 13 or 20 quarters, calculating the average end-of-quarter values, and taking a set percentage – usually around 5 percent – of that average for that year’s operations. Because of the trailing average, the budgeted amount doesn’t vary a lot from year to year, which helps with planning. Organizations relying on a fixed percentage of a trailing average don’t take out too much in a good market or too little in a bad market. But some organizations take far less than the 5 percent or so, or they take nothing at all. And in the meantime, they struggle to find staff members – or to compensate their current employees fairly.
A holdover from the 1950s?
A colleague of mine offered up an explanation for why underpaying staff at nonprofits is so common, and so accepted – and at the root lies sexism. She said, “This is a model from the 1950s, where virtually every middle- and upper-middle-class adult was in a traditional marriage. The husband went off to a well-paying, well-benefitted job as a banker or lawyer or executive, and the wife, if she worked at all, would take a job at a nonprofit for fifty cents on the dollar. It was assumed that she was not the breadwinner, and society accepted that she would work for next to nothing.”
Assuming there’s some validity to this observation, we can see the long-term impact. That model continues today, but society has changed dramatically, as has our economy. Compared with seventy years ago, or even twenty years ago, there are far fewer traditional marriages, and there are fewer of those well-compensated “breadwinner” jobs, particularly those where people work for the same company or firm for their entire career. Whether the nonprofit worker is in a two-income family or is a single-earner, that nonprofit salary is not incidental: it’s vital. And, by the way, the large majority of nonprofit staff members are women. And they still are underpaid.
Not only does this disregard for staff salaries haunt individual nonprofits, but it’s reinforced throughout the nation by the measures we use for evaluating nonprofits. I’ve been preparing a presentation on the efficacy and impact of charity evaluators, and in doing the research I interviewed the CEOs of Charity Navigator and Charity Watch, two of the most prominent rating groups. Charity Navigator and Charity Watch disagree with one another about methodology. But one thing they agree upon is the importance of nonprofits keeping expenses down. They want charities to deliver “product” – whatever that is – for a lean price.
The challenge is that what a nonprofit delivers is not a widget. It’s counseling for a veteran. It’s food for the hungry. It’s a piano lesson, home health care, hospice support, saving an endangered species. None of these “deliverables” is easy to measure. And there’s a qualitative aspect to everything nonprofits do. Effective nonprofits rely on caring, committed staff not only to do the job, but to do it well, and with pride. And, yes, those staff members need to be taken care of financially.
We care about workers’ rights, until we don’t.
A lot of us avoid patronizing companies that are notorious for taking advantage of their employees. We may choose for that reason not to buy, say, from Amazon or Walmart. But then when we are considering making charitable gifts, many of us in part base our decision on how much “bang for the buck” there is. Allow me to point out that bucks get banged when staff are underpaid.
I say: If you have an endowment, take the full 5 percent of the trailing average, and use it to pay your staff a living wage. When you’re doing strategic planning or putting together a budget or developing a capital campaign, don’t go all in on building projects and neglect the staff who will be doing the work. It’s no shame to pay staff well. In fact, it’s shameful — and short-sighted — to pay them poorly.
Copyright Alan Cantor 2022. All rights reserved.