August 1, 2012

Commission Does Not Pay: Compensation for Development Professionals

3777924Why is compensation always such a hot button issue in the nonprofit world? On a regular basis, I hear questions (and complaints) about the following:

· How are we supposed to pay for a fundraiser when we need someone to raise the money to pay for the fundraiser?

· Can’t you just take a percentage of the grant amount when it comes in?

· Shouldn’t you raise the money to pay for yourself?

Dutifully, I point to the Association of Fundraising Professionals (AFP) Code of Ethics and Standards of Professional Practice, to which all AFP members must agree to abide. Standard number 21 states:

Members shall not accept compensation or enter into a contract that is based on a percentage of contributions; nor shall members accept finder’s fees or contingent fees.

There is a white paper on why percentage based compensation is a bad idea for nonprofits, which boils down to two things:

· Percentage based compensation puts the fundraiser’s interests ahead of the organization’s, and

· Percentage based compensation, due to the length of time it may take for a gift to come to fruition, may produce reward without merit.

I agree with these positions and do my best to comply with the Code of Ethics. I don’t fundraise on commission. I don’t write grant proposals for a percentage of the grant amount.

In the past, I have accepted bonuses and have done sales work on commission. And over time, I’ve come up with new reasons to add to why fundraisers should not be paid on commission.

Because working on commission stinks.

I understand why companies, whether for-profit businesses or nonprofit organizations, want to pay on commission. You are paying for performance–you don’t have to expend resources until you have them, and the person receiving the commission has control over what they can earn. In theory.

Here’s why commissions don’t work:

· Short term effectiveness. Yes, if you’re really successful as a commission-based professional, you can make a lot of money. But how sustainable is that performance? Can you hit that every year? Goals are inevitably set higher and higher each year, and as it becomes more and more difficult to reach goals, your income drops. Not motivating!

· Quick turnaround focus. Higher dollar deals take time to close. You need cultivation, or “get to know you” time, and frequently the decision involves multiple layers of decision makers. If you’re working on the higher dollar deal, you can feel like you’re being penalized since you’re not being compensated as you work on the relationship development. Or, you can be pushed cut corners to close the gift faster.

· No motivation to work as a team. So who gets the money if you work together on an ask? Is it somehow split? Who gets credit for this? Am I working harder than the other person or people on the team? You become focused on yourself and what others are NOT doing rather than being focused on the right thing for your organization.

· Little feeling of control. Even though commission-based compensation is supposed to reward highly productive salespeople, there are many things out of your control. Fewer available prospects, smaller deals, reduction in options to offer, change in opinion about your company, etc. all will impact the professional’s effectiveness. What you did last year to earn your commission may not work again this year.

· In a bad year, commission-based compensation can make things worse. Failure is generally not motivating. If you’re not successful, then you’re not being paid. And if you’re not being paid, it’s hard to get yourself excited about trying again. Your daily existence becomes more about desperation than motivation.

· It’s a game of numbers. Commission-based professionals, to make a decent wage, need to make as many calls as possible, and the majority of them need to be calls to close. Very few people will have the discipline or the financial cushion to have one big success and then spend months or even years cultivating another. This encourages quick asks that might not be renewable, or lower dollar deals that can close quickly.

· Lack of genuine appreciation. “Well, you’re being paid for your performance, so why do I need to thank you?” As a manager, if you’re writing a check when someone closes a deal, you think that’s the appreciation. As the person receiving the commission, that’s compensation for work done, not appreciation. This gap can lead to resentment and distrust.

Let’s face it. Effective fundraising takes time, and it takes money. As much as it is an upfront investment to pay someone a living wage to work in fundraising, in the long run, it should be an investment worth making for your organization to develop long term relationships with your donors and a sustainable source of income for your mission.

Article written Friday, December 9, 2011 by GoalBusters Consulting

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