Nonprofits need to help their donors understand that charitable organizations have a lot in common with businesses. Dan Pallotta, a prominent nonprofit expert, told a group of charity fund raisers in New York.
"We don't like to see a lot of people making a lot of money in charities," says Mr. Pallotta, the keynote speaker at this week's Direct Marketing Association's New York Nonprofit Conference. People have a "visceral reaction" to the notion.
But nonprofit compensation should match or at least correspond to the salaries in the for-profit world, he says. For one thing, nonprofit salaries at the moment don't attract the best and brightest. Why work as a chief executive for a medical charity at $230,000, he says, when others with the same MBA have salaries of $400,000 or greater?
Mr. Pallotta, the inventor of multiday AIDS Rides and Breast Cancer 3-Day events, says other items of neglect in the nonprofit world are marketing (there's limited advertising), risk taking (fear of big fund-raising efforts), time (investment in long-term revenue growth), and expansion (since 1970, only 144 nonprofit organizations have crossed the $50-million revenue barrier; in the for-profit world, some 46,000 companies have.)
In addition, he considers this question from donors a "sinister" one: "What percentage of my donation goes to the cause versus overhead?"
Donors need to learn why that question is problematic, he said. First, it divorces "overhead" from "the cause." It also forces charities to forgo what they need to solve problems, such as hiring an innovative new leader or tripling the fund-raising staff to increase long-term giving. Most important, this gives donors bad information. The high quality and service of a local soup kitchen, for instance, may be because of its investment in staff and equipment, not because of how it reports low-overhead costs.
Mr. Pallotta told fund raisers to stop using the word "overhead." Instead, he told them to train donors and board members to ask how effective the organization has been in accomplishing its mission and goal for the cause.
Mr. Pallotta also suggested setting up an organization for nonprofits to defend their practices, create public awareness, spur a legislative force. and establish legal strategies against municipalities that require charities to meet a low overhead standar
"We don't like to see a lot of people making a lot of money in charities," says Mr. Pallotta, the keynote speaker at this week's Direct Marketing Association's New York Nonprofit Conference. People have a "visceral reaction" to the notion.
But nonprofit compensation should match or at least correspond to the salaries in the for-profit world, he says. For one thing, nonprofit salaries at the moment don't attract the best and brightest. Why work as a chief executive for a medical charity at $230,000, he says, when others with the same MBA have salaries of $400,000 or greater?
Mr. Pallotta, the inventor of multiday AIDS Rides and Breast Cancer 3-Day events, says other items of neglect in the nonprofit world are marketing (there's limited advertising), risk taking (fear of big fund-raising efforts), time (investment in long-term revenue growth), and expansion (since 1970, only 144 nonprofit organizations have crossed the $50-million revenue barrier; in the for-profit world, some 46,000 companies have.)
In addition, he considers this question from donors a "sinister" one: "What percentage of my donation goes to the cause versus overhead?"
Donors need to learn why that question is problematic, he said. First, it divorces "overhead" from "the cause." It also forces charities to forgo what they need to solve problems, such as hiring an innovative new leader or tripling the fund-raising staff to increase long-term giving. Most important, this gives donors bad information. The high quality and service of a local soup kitchen, for instance, may be because of its investment in staff and equipment, not because of how it reports low-overhead costs.
Mr. Pallotta told fund raisers to stop using the word "overhead." Instead, he told them to train donors and board members to ask how effective the organization has been in accomplishing its mission and goal for the cause.
Mr. Pallotta also suggested setting up an organization for nonprofits to defend their practices, create public awareness, spur a legislative force. and establish legal strategies against municipalities that require charities to meet a low overhead standar