The next few weeks I will be posting several discussions that focus on the topic of incentive pay for fundraisers. This is a hot topic in development right now. For some managers financial incentive pay is a possible avenue to inspire and reward performance and gift income. For others the idea clashes strongly with the idea of non-profit and charity missions and cultures. Opinions aside, here are a few things we do know about incentive pay*:
Incentive pay has been around the non-profit sector for a while.
In the early 1990’s the rise of incentive pay was also a hot topic, with up to 25% of surveyed non-profits reporting some level of performance-base bonuses for managers and leaders. That’s at least 20 years of debate, reform, and revisions of incentive pay programs for fundraisers. While bonuses have been used in the for-profit sector for much, much longer, it is important to remember that this is not a new topic and that it is also likely that incentive pay will be around for a long time in the future.
Incentive pay is more common in large fundraising shops.
Large shops have more developed metrics and management structures. It follows then that there is a wider variety of management strategies for these staffs. Most models of incentive pay can be found in development shops with ten or more frontline fundraisers. This often stems from a desire to even out performance, which, as we’ve mentioned, can be greatly unbalanced even when accounting for portfolio capacity.
For large institutions the likelihood of incentive pay increases when there is a separate entity or foundation leading development.
Many healthcare centers and universities hire fundraisers under the broader institutional umbrellas of human resources. In such cases there are more restrictions on compensation and position structuring. It is more common, therefore, to find incentive pay when development is “owned” by or falls under the supervision of a separate foundation or other managing entity, which can offer more flexibility in compensation packages and management.
Many incentive pay plans are based on group goals.
Based on the results of benchmarking studies anywhere from 60-75% of institutions who offer bonus compensation based on performance structure those payouts around group or team goals. In many cases a fundraiser might also qualify for additional pay based on his individual performance, but that can only be reached one the team goal and threshold has been met. Group goals also tend to bring in and attract junior level talent and be more inclusive of non-frontline fundraising staff.
Tying incentive pay directly to gift income is uncommon.
The AFP Code of Ethics explicitly condemns this behavior as it promotes self-interested behavior by employees and is widely frowned upon by donors. Incentive pay is not used as a sales commission in any common model for a few reasons. The first is the same objection raised by the AFP about the ethical implications of personally being able to profit from a gift. The second lies is the sheer logistics, team work behind, and complexity of most very large gifts, any one of which which could dramatically swing incentive compensation that would be based on income alone.
Most bonus plans offer 10% of salary or less in incentives.
By their nature non-profits are extremely budget conscious. Since most non-profits have ruled out the structure of a “commission-like” incentive pay development shops must budget each year for bonuses without knowing overall income. As a result even those organizations that have embraced and institutionalized incentive pay do not structure it to outweigh or even significantly compete with base salary,
The direct effect of incentive pay on long-term performance and retention is still widely unknown.
Those who support incentive pay use largely anecdotal evidence as to its benefits and impact on development shop performance and staff retention. There have been very few large scale, longitudinal studies that concretely point to incentive pay having a consistent positive effect. This doesn’t mean that incentive pay doesn’t have this effect, just that the exact impact is unknown or, more likely, is inconsistent due to the wide variance and circumstances across non-profit organizations.
When one looks at the discussions on the positive impact of work culture, vacation pay, and hour flexibility on employee satisfaction and performance, it is possible to dismiss incentive pay as unnecessary in the non-profit field. However, based on what we do know, this is not a topic that will disappear anytime soon.
Financial bonus structures for non-profit employees is a controversial topic, and we will weigh the detriments and benefits in a later discussion as well as feature a “Point/Counterpoint” debate on the topic between two guests this month. In the meantime feel free to contribute your thoughts on the topic in the comments below.
* based on benchmarking studies, field research, and personal interviews with leaders in development.