Ethics
motivation: C
mission
or money?
How percentage-based compensation can encourage
abuses, jeopardize the public’s trust and undermine the
philanthropic values at the heart of the nonprofit sector
B y Wa l t e r S c z u d l o
ommission- or percentagebased compensation for
fundraisers is a subject that
simply will not go away. In
fact, according to results of an online
ethics and compensation survey sent to
a random sample of members of the
Association of Fundraising Professionals (AFP) in May 2003, 57 percent
reported that they had been asked as
fundraisers to consider raising charitable funds on a commission basis (see
sidebar). Furthermore, nearly 88 percent of those believe that the people
proposing commission-based compensation did not understand why AFP
prohibits the practice under the AFP
Code of Ethical Principles and Standards of Professional Practice.
It appears that there can never be
too much information about why normally proper monetary motivation in
for-profit organizations is not applicable in the nonprofit sector. There is a
constant need to explain the inherent
conflict of interest between charities
founded without intent of profit or
private benefit, and employees whose
compensation and primary motivation
are based on personal financial gain.
A Matter of Trust
Timothy Cook
Charity is built on public trust. To
accomplish their programs and provide needed services, nonprofits rely, in
great part, on voluntary donations to
meet their budgets. Donor trust is of
paramount importance, and to earn
and retain that trust a charity’s activities must be beyond reproach. In fact,
nowhere is ethical behavior more
essential, or its absence more damaging, than in philanthropic fundraising.
If donors ever feel that their money is
not being used in the most efficient
and ethical manner possible, that trust
will be eroded.
To b e e t h i c a l , p h i l a n t h r o p i c
fundraising must be mission-led, institutionally based, volunteer driven and
professionally supported in an environment free of improper motives,
unmerited rewards or personal gain.
The fundamental premise of nonprofits is to raise charitable support
A d v a n c i n g P h i l a n t h ro p y
30
I
September October 2003
Ethics
through volunteers. When compensation is introduced into the charitable
support equation, there need to be
concise guidelines to explain what
compensation is reasonable under the
circumstances. AFP believes that individuals serving a charity for compensation must accept the principle that
charitable purpose, not self-gain, is
paramount. What happens if that principle is ignored?
• Percentage-based compensation,
however administered, can produce
reward without merit
• Charitable mission can become secondary to self-gain
• There is incentive for self-dealing to
prevail over donors’ best interests
• Donors’ trust and attitudes can be
unalterably damaged in reaction to
undue pressure and when they realize that a commission from their
gift will be paid to a fundraiser
The headline-making scandals at
companies such as WorldCom and
Enron can, and unfortunately do,
occur just as easily at nonprofits. For
this reason, to preserve and protect
donor rights and the integrity of the
philanthropic process, AFP’s Code
includes the following statements
regarding compensation:
• Standard 16: Members shall not
accept compensation that is based
on a percentage of charitable contributions; nor shall they accept
finder’s fees.
• Standard 17: Members may accept
performance-based compensation,
such as bonuses, provided such
bonuses are in accord with prevailing practices within the members’
own organizations, and are not
based on a percentage of charitable
contributions.
• Standard 18: Members shall not pay
finder’s fees, or commissions or percentage compensation based on
charitable contributions, and shall
take care to discourage their organizations from making such payments.
Just Rewards
In the charitable sector, the key issue is
support of the charity—not the charity’s
w w w. a f p n e t . o rg
AFP Ethics and Compensation Survey
Following are some results of the recent online survey sent to a random sample of members of the Association of Fundraising Professionals (AFP) in May 2003:
Fundraisers should be allowed to receive commission- or percentage-based
compensation from charitable gifts that they generate.
Strongly disagree
61.4%
Disagree
20.4%
Neither agree nor disagree
5.8%
Agree
7.9%
Strongly agree
4.6%
Have you ever been asked as a fundraiser to consider raising charitable funds
on a commission basis?
Yes
57.0%
No
43.0%
If you answered yes, do you believe that the person proposing commissionbased compensation understood why AFP prohibits the practice under the AFP
Code of Ethics?
Yes
12.2%
No
87.8%
How do you think the public believes fundraisers are compensated for generating gift income that qualifies for a charitable deduction?
Flat fee or straight salary
51.2%
Flat fee or straight salary, plus bonus for achieving goals
8.9%
Straight commission or percent of income raised
7.1%
Flat fee or straight salary, plus commission or percent of income raised
12.9%
Other combination that includes commission
4.6%
They don’t think about it or don’t care
11.7%
I do not have an opinion on this matter
3.7%
individual employees. One of the problems with percentage-based compensation is that it can result in rewards that
are not merited. Standard 16 recognizes
that fundraising is a continuing practice
in which current funds received may be
the result of efforts of others in previous
years, just as current fundraising activities may result in funds being generated
at some time in the future. As in any
organization, but especially in charities,
donor trust is based on long-term relationships with many individuals.
Rewarding only the person who completes the transaction is unfair.
At the same time, charities receive
unexpected or unsolicited gifts, often
bequests, sometimes from previously
unknown benefactors. Such windfall
gifts can provide an unrealistically
high base—in effect, an unearned
base—on which percentage-based
compensation may be calculated.
Nevertheless, nonprofit organizations can reward a job well done with31
out jeopardizing their mission or taking
advantage of donors’ largesse. Where
bonus programs are in place, they need
to be administered so that no one individual is unfairly rewarded. Any kind
of incentive program based on performance must be uniformly applicable
throughout the organization and not
just in the development office. And, no
matter how the incentive program is
designed, it must not be based on a percentage of the funds raised.
Many nonprofits, however, say this
is difficult because the development
office is the only department to generate
revenues. Therefore, only fundraisers
should be rewarded. This is narrowminded thinking and helps explain why
Standard 17 of the Code exists. The
people who cook in the soup kitchen
are just as important as the fundraisers.
Everyone in the organization is working
to advance the charity’s mission, and
thus should share in performance
bonuses because they have done their
A d v a n c i n g P h i l a n t h ro p y
Ethics
best to reduce costs, improve productivity, create greater public awareness, etc.
Yes, there is interest in bonuses and
incentives, but as the AFP survey results
illustrate, almost 82 percent of the
respondents believe these should not
spill over into outright incentive-based
plans. The bottom line is that a charity
is not a for-profit business where selfgain is paramount.
Whose Interests?
Timothy Cook
Charitable giving is a voluntary action
for the public benefit. The seeking and
acceptance of charitable gifts should
not provide personal inurement to anyone. Donors’ interests are in the charity
and its mission—not a particular individual fundraiser. Over time, fundraisers establish and nurture relationships
with donors. At no time, however,
should fundraisers ever take advantage
of those relationships and generate
funds from donors that may not be in
the donors’ interests. (See Standard 4 of
the Code, which states, “Members shall
not exploit any relationship with a
donor, prospect, volunteer, or employee
to the benefit of the members or the
members’ organizations.”) As relationships with donors develop and mature,
fundraisers must always take care to
remember they are representatives of
their charities and act accordingly.
A d v a n c i n g P h i l a n t h ro p y
And Political Fundraisers?
In the United States, political fundraisers
have historically received commissionbased fees based on amounts raised to
support candidates running for office.
AFP has been working with associations
of political fundraisers to better understand the similarities and differences
among their respective fundraising practices and codes of ethics. AFP staff has
been pleasantly surprised to discover
that percentage-based compensation is
becoming less of an issue. In fact, the
trend in political fundraising is moving
away from commission-based compensation and the preferred form of payment is a straight fee.
Essential Volunteers
Fundraising is an ongoing process of
donor identification and cultivation.
Individuals develop an affinity for an
organizational mission and wish to
further it through charitable contributions. A major tenet for success in the
philanthropic sector is that an organization is strengthened when volunteers
are actively involved in this process.
The role of a professional fundraiser
should include building an increasingly
committed, enthusiastic and capable
group of volunteers who affect the
fundraising process without compensation. Tying staff compensation to a
percentage of charitable contributions
raised may discourage this activity.
This is true for in-house volunteers
or external third parties. If charities
cannot pay salaries for services rendered, they should look to volunteers.
Too many “new” or “grassroots” charities say they cannot afford to pay for
fundraisers as employees. It seems too
obvious to note, but if you cannot
afford to pay for fundraising you
should not be hiring someone—including percentage-based solicitors. The
importance of volunteers in these circumstances cannot be overstated. Why?
• Charities get a base in the community made up of individuals who
know the organization and are
passionate about it.
• Volunteers will be interested in the
governance and operation of the
32
organization and will lend their
expertise—all for free.
• Volunteers will want the organization to be successful and will
become active in all aspects of the
nonprofit—including fundraising.
• These individuals will give the charity credibility because they know it,
are able to answer questions, and
can assure its good governance and
the good stewardship of the charitable support it receives.
And if there are not enough charitable dollars to support an organization
and there are not enough volunteers to
support its activities? That does not
mean relaxing the standards of the
Code. Rather, it means the organization has to do some real soul-searching
about its fundamental existence. Is it
still serving the community in an
important way? Has it fulfilled its mission? Is there another local charity that
is doing the same work more effectively and efficiently? If so, perhaps the
two nonprofits should merge or consolidate. Or, the less efficient charity
may have to close its doors. As AFP
President and CEO Paulette Maehara,
CFRE, CAE, noted in her report
(Advancing Philanthropy July/August
2003), we may be reaching a saturation point, with too many charities
splitting too few charitable missions.
Nonprofit organizations and their
fundraisers have numerous options to
consider every day. Deciding whether
to adhere to or disregard the AFP
Code of Ethics is not one of them. In
the short term, percentage-based pay
may be very tempting, but the longterm consequences will always prove
to be too costly for any charity.
For further information, read the
AFP paper on percentage-based compensation at www.afpnet.org/ethics.
For a copy of the AFP Code of Ethics (with
enforcement procedures, time limits, forms,
addresses and phone numbers), visit www.afp
net.org/ethics, or ask any chapter president for
one. Call AFP’s CEO or general counsel for confidential ethics advice about proposed transactions at 703-519-8440.
I
September October 2003