Charities: Size Does Matter

One of the more common questions for those considering a move from the for-profit world into the philanthropic sector is about the pay, and the nature of the roles. I'm going to share some "truths" about these questions, and expand into some thoughts about the future of the entire sector.

First, it is true that many well-compensated people will make less money working for a charity than they made in the for-profit world. As everyone has heard, part of the reward of working in this sector is knowing you're making a difference, and often the sense that you're following your "calling", and for reasons I'm not entirely clear on this translates into less pay. The best explanation I can come up with is that because charities operate with other people's donated money, and the fact that every dollar spent on salaries is a dollar less for the mission, we tend to undercompensate employees. More on this strategy and the implications to the sector another day...

Second, there is usually a direct correlation between the size of the charity (e.g. top-line gross revenue) and their ability to pay a reasonable wage. Big hospitals, universities and "name" charities (Heart, Cancer, etc.) have the capacity to pay more than the little theatre troupe down the street.

None of this is news, but there has been a trend towards more competitive pay to attract and retain top talent. Senior positions in a charity are incredibly complex and challenging, so ensuring appropriate compensation is a vital factor – something the for-profit world has known for a long time. This has led to occasional mistakes in judgement in terms of just how much donors are willing to support for salaries, but except for these examples there has been a trend upwards in terms of salaries. And it’s the bigger charities that can most afford this cost, so keep that in mind if you’re out looking to make the transition.

This size conversation leads to my final point. The economy is struggling. Government is deep in debt and less eager to make significant investments in the charitable sector. The big charities want to keep growing. All of this puts massive pressure on the thousands of little charities that are struggling to make ends meet across Canada every day. My sense is that a "day of reckoning" is coming, and that charities below a certain size will face enormous pressure to gain critical mass, to merge with other charities, or to find some other synergistic way to reduce costs in the next 3-5 years, or they simply won’t survive. So size matters in another way: in a sector with nearly 100,000 competitors, and with new entrants every day, when the food supply shrinks (e.g. funding) then some tough times are likely ahead.  For those considering a move into the philanthropic sector size may be a key consideration.

Salary Caps in the Charitable World

There's been a lot of noise in the last few days about salary caps for the leaders and senior executives of charities, and CBC in particular has been hosting call-in shows to debate the topic.

My sense is that there may be some need for oversight, but that in general charities are best left alone to manage salaries as they see fit.  The need for oversight and perhaps even some kind of limits is most obvious where public funds are being used in a significant way to support the charity.  I'm not talking about a little Trillium grant supporting a charity, but where a large portion of your (and my) tax dollars are at work it's simply bad optics to pay sky-high salaries to leaders no matter how skilled or experienced.

That said, many charities operate with little or no government support.  And they should set their own pay scales and pay bands.  In fairness that's what Board and Directors do, or they delegate to a Committee.  Hopefully they're mindful not only of the "bottom line" but also the public perception of what they're paying their Execitive Directior or CEO... We all remember the media frenzy a short while ago when a local large health-care charity paid a large sum to a departing CEO!

However, talent does come at a cost.  And large charities in particular have learned that running their $100 million plus sized organizations is at least as demanding than similar-sized organizations in the for-profit world, so you need to obtain and retain good talent... And that requires a fair wage.

Finally, there is one other ultimate arbiter of wages for charitable leaders: their donors.  While some donors may not be as informed as they should be in making their giving decisions it doesn't take too many articles or bad press to "scare off" donors, and the perception of "fat cat" leadership salaries will certainly sway donor thinking!

Thus, my contention is that in general most charities should be left to determine leadership compensation on their own.