“The Way We Think about Charity is Dead Wrong” by Dan Pallotta on TED Talks (2013) had an immediate impact by provoking a much needed conversation about five critical components that discriminate against nonprofit organizations compared to their for-profit peers. Those five components are compensation, advertising and marketing, taking risk on new revenue ideas, time, and profit to attract risk capital.

Pallotta persuasively argues that it is time to recognize and redress the disconnect between our unrealistically high expectations of the nonprofit world compared to the for-profit sector. The conversations are still ongoing, and much work remains to be done, but we are seeing progress.

If you believe that non-profit organizations play a valuable role in helping the needy and helping to advance society forward, it’s time that we change the way we think about non-profit spending.

Changing the world is a tall order, and our ability to do so has been severely limited by how we treat the nonprofit sector. Nonprofits that spend heavily on fundraising and salaries have long been ostracized and ridiculed for “wasting” dollars that could have gone directly to the cause. But this attitude handcuffs the organizations, making them unable to attract top talent and scale their contributions into much greater dollar amounts over time.

Take a moment to consider a for-profit organization vs a nonprofit organization. For-profit organizations are encouraged to spend and earn as much money as they can, or as they’d like, and their products and services do not have to benefit anyone at all. They can literally sell products that cause cancer, on a large scale, and any employee that contributes to reaching their sales goals can receive hefty compensation. By comparison, nonprofits are often stripped of sponsorships and flagged as “scams” when they invest heavily into their infrastructure or overhead. But how can you achieve big dreams if every dollar invested is subject to judgment by every contributor?

Following Pallotta’s logic, there are five main reasons that many nonprofits struggle to achieve results, but for-profit companies are held to an entirely different standard. It is only when we change our perception of nonprofit spending in these areas that we can see a true change in the success level of our charity organizations.

• Compensation

On an ethical level, the average person seems to take offense when a nonprofit CEO takes a large salary. While these salaries rarely compare to the compensation of for-profit CEOs, there is a general consensus that anyone working in the charity sector should be doing so out of the goodness of their heart, greatly discounting their talent and drive for the good of the world.

But how many business people are willing to make 75% less than what they’re worth, for the duration of their career? They would be better off making large donations each year than foregoing their livelihoods altogether in the name of the “greater good.”

It is long past time to allow nonprofits to attract top-tier talent by compensating them appropriately, and competitively with for-profit organizations.

• Marketing
  

Have you ever donated to a charity that you have never heard of? If you heard briefly about a charity and its mission, would you immediately make a monetary donation to them?

The fact of the matter is, the most successful charities have raised significantly more money by putting their name and their causes front and center for the world to see. Household names like United Way, Salvation Army, and St. Jude Children’s Research Hospital are able to do so much good because people know about them, how to donate to them, and that they’re actively accepting donations.

So why do we criticize charities for spending on marketing and advertising? Why are those dollars considered less important than the dollars going directly to the cause? The ability to raise money is directly tied to the ability to market your charity.

Since charitable giving began being measured in the 1970s, it has remained stagnant at 2% of GDP. That number has never changed, and why should it? Charities are actively discouraged from marketing themselves. In fact, many donors specifically request that their donations not be used for advertising.

• Time
  

Many donors want to see an immediate return on their investment in a nonprofit. They want to see a picture of little Timmy who directly benefited from the $20 they mailed in last week. But what if that $20, invested into fundraising and building of infrastructure over the course of a year, could become $160? And that $160 would go that much further towards helping the cause in the long-term? We don’t give nonprofits the same amount of time to achieve results as we allow for-profit companies – even when we see the long-term potential for success.

• Taking Risks
  

“Take the risk or lose the change.”

Risk-takers in for-profit businesses are often rewarded for their out-of-the-box thinking. Sometimes, they even get a second chance if their first effort isn’t as profitable as hoped, but the potential is realized and can be improved upon.

In the nonprofit world, taking risks is deeply frowned upon. Great big ideas for new fundraisers rarely come to fruition for fear that they won’t immediately generate results that justify additional spending. Creative minds are stifled in fear that even one failed fundraiser will eliminate support for the nonprofit altogether.

This kind of thinking not only minimizes the ability to raise money but discourages great minds from becoming involved in nonprofits at all.

• Profit
  

Donations to charities are exactly that: generous gifts. At most, you may receive a branded notepad or address labels in return. Your sense of satisfaction at having contributed to a good cause should be enough for you to continue giving (and the tax break definitely helps).

For-profit businesses can invest your dollars, turn them into many, many more dollars, and even pay you a return on them. Everyone makes money.

Charities are completely unable to participate in the markets and reward their loyal donors in the same way that for-profit companies can. This eliminates a valuable source of capital from being tapped into.

We Can Be the Change

Change in the perception of the nonprofit sector starts with each one of us. It’s time to drop the preconceived notion that anyone involved in a non-profit organization deserves minimal compensation. It’s time to allow nonprofits to spend big when they see the potential to earn big on their investment. It’s time to allow nonprofits to scale at a new level, and pay their valued staff a competitive wage that attracts high-level employees.

At the International Fellowship of Christians and Jews (IFCJ or The Fellowship), President Yael Eckstein knows that compensation is important. She seeks to elevate the organization and the mission of The Fellowship by compensating her team in a way that is commensurate with their experience and contribution.

According to Yael Eckstein: “Salary, benefits, and incentives motivate talented and experienced professionals. At The Fellowship we have worked hard to foster a meritocracy where outstanding employees can be appropriately rewarded for their contribution to our organization’s mission, while staying within reason of industry standards. Our compensation is reviewed by an outside firm and deemed “reasonable” based on similar roles, positions, and size of organization.”

The Fellowship raised more than $200 million in 2021 and is the largest provider of humanitarian aid in Israel. In 2021 alone, The Fellowship provided support to more than 2 million Jews, proving that Eckstein’s approach works. You can do good on a large scale, and be appropriately compensated for it.

Produced in association with The International Fellowship of Christians and Jews (IFCJ)