JOB MARKET

Incentive Pay Helps Keep Some Top Fund Raisers On the Job

Three years ago, the fund-raising operation at the University of California at San Diego was faltering. Some top employees were taking advantage of the booming economy to move on to better-paying jobs, and qualified applicants for new openings were becoming harder to find.

James M. Langley, vice chancellor for external relations, gave merit raises to his best fund raisers, but the sizes of the raises were often constrained by the amount he was authorized by the state to give. "The market pressures were enormous," he says. "We realized that if we wanted to attract and retain good people, we'd have to gain some new competitive advantage."

His solution: an incentive-pay plan that allows fund raisers to earn annual bonuses worth as much as 15 percent of their salaries. The plan, paid for in large part by donations, has improved the quality and stability of the staff, according to Mr. Langley, and has been an important factor in increasing gifts to the university. The institution raised $120-million last year, twice as much as it was taking in before Mr. Langley arrived in 1998.

Incentive-pay plans are still relatively rare, but they're becoming more common at large nonprofit organizations, especially universities. Most such plans, including the one at the University of California at San Diego, are based on several criteria; among them are the number of new donor contacts made and solicitations presented, and "stewardship" of existing donors. The plans are considered one way to keep fund raisers aggressive and motivated -- and to keep them from wandering off in search of higher salaries. Incentive pay is also not considered unethical by most charities, as are commissions based on money raised.

But skeptics of such plans may be more numerous than believers. Detractors say the plans can burden managers with paperwork; are difficult to administer, because dozens of people could be involved in landing a multimillion-dollar gift; and may hurt the organization in the long run, if fund raisers start pressuring donors to expedite their gifts.

Colette Murray would disagree. Ms. Murray, chief executive officer of an executive-search firm in San Diego and chairwoman-elect of the Association of Fundraising Professionals, says that incentive-pay plans are useful for nonprofit employers. Such bonuses, she says, are preferable to big salary increases, which can cause a hard-charging fund raiser to grow complacent. "It gives you a fresh slate every year," she says. "You want to give people the incentive to continue to produce."

In the past year, the Association of Fundraising Professionals, in Alexandria, Va., has reviewed dozens of incentive-pay plans to ensure that they meet ethical standards, according to Walter Sczudlo, the association's vice president for public affairs, communications, and general counsel. (Having signed confidentiality agreements, association officials are not permitted to talk about the specifics of the plans.)

Some organizations, however, have reconsidered the effectiveness of incentive pay. In August 2001, the University of California at Irvine ditched an incentive-pay plan that had been in place since 1994. A report by consultant Gina Kelsch of Davis, Calif., that led to the dissolution of the strategy found that the plan had hurt staff morale, created unhealthy competition, and focused efforts on short-term goals, rather than on long-term relationship building.

"I think incentive-pay plans are dangerous," says Bill Jaques, a fund-raising consultant in Danvers, Mass. "The real objective is maximum lifetime support from the prospect. Incentive pay that is attached to fund-raising accomplishment can fuel a muscular 'go for all the marbles' approach that can ruin years of hard work."

Incentives, Not Commissions

Virtually all current incentive-pay plans are careful to comply with ethical guidelines established by the Association of Fundraising Professionals, and the Council for Advancement and Support of Education, in Washington, an association that represents academic fund raisers and public-relations officials. Those guidelines prohibit development officers from receiving commissions based on the amount of money they raise.

Not long ago, such commissions were common, especially among smaller organizations, which often preferred to share a percentage of the funds raised, rather than to commit to a generous salary. Mal Warwick, a fund-raising consultant in Berkeley, Calif., says that his first fund-raising job 25 years ago was based on commission, and that he found himself getting rich as donations poured in. He felt so guilty about the money he was making that he eventually volunteered to take a pay cut of more than 60 percent. "I felt that I was taking money away from the cause," he says.

The University of Minnesota Foundation, which has had an incentive-pay plan since the mid-1980s, revamped the plan in the early 1990s to remove any mention of dollar goals. Today, fund raisers can earn up to 10 percent of their base salary for excellent overall performance and for meeting three or four goals negotiated at the beginning of the year. The goals vary by position, but for a major-gifts officer might include: number of calls made, number of proposals presented, and number of times a dean or key administrator was brought in to meet with a potential donor.

Since the program was created, the number of annual donations has risen from 35,000 to 73,000, and the dollar value of those gifts has increased from about $20-million to more than $200-million, on average, for each of the past three fiscal years.

At both the University of California at San Diego and the University of Minnesota Foundation, consultants who evaluated the programs had predicted that more-generous incentives would be necessary to keep fund raisers on the job. But executives at both universities say that modest bonuses have proved sufficient.

"Frankly, I think people in the nonprofit sector are driven by more than monetary reward," says Gerald B. Fischer, head of the University of Minnesota Foundation. "Our determination is that we haven't needed in this world the 30-, 40-, and 50-percent-plus type of incentive-pay programs that one would see in the for-profit world."

Both Mr. Fischer and Mr. Langley acknowledge that their incentive-pay programs have needed some tinkering over time. Among the things they've learned:

• For the sake of office harmony, incentive pay must include everyone who works in fund raising. Minnesota's plan was expanded to include people involved in prospect research and donor relations -- units that had been left out of the initial plan. In contrast, the Irvine plan did not include everyone in the development office and, according to the report that led to the plan's dissolution, that policy "negatively impact[ed] staff morale and a culture of teamwork throughout development."
  
  
• The plan must include more than just numerical goals. The University of California at San Diego found during the first year of its incentive-pay program that some fund raisers were focusing on merely notching up contacts, rather than on quality interactions with donors. "People were working the numbers," Mr. Langley says. Now, supervisors meet frequently with fund raisers to assess whether the meetings with donors have been substantive or primarily schmoozing.
  
  
• Different divisions need different goals. Because the School of Education at the San Diego campus has a relatively new fund-raising operation, incentives for the school's development personnel focus on building contact lists, rather than on shepherding large gifts -- a goal more suitable for the engineering school's long-established fund-raising program.
  
  
• Teamwork must be rewarded. Otherwise, fund raisers may be unlikely to hand off a donor to a colleague with more expertise in the area the donor wants to support. "Without an explicit statement of teamwork as value, there's a natural human tendency to make your own portfolio look as valuable as possible," Mr. Langley says.
  
  
• Don't emphasize solicitation of gifts too heavily in the criteria, which could turn the incentive into a "de facto commission," Mr. Langley warns.
  

Critics worry that even properly designed incentive-pay plans may attract employees who are willing to sacrifice the organization's advancement for their own financial gain.

Gina Kelsch, a fund-raising consultant in Davis, Calif., who wrote the critical report on the University of California at Irvine's plan, notes that many fund raisers already make big salaries by nonprofit-employee standards. Experienced major-gifts officers in the University of California system, for instance, make an average annual salary of $80,000 to $100,000, Ms. Kelsch says.

"Are you in it for the dollars, or because you care deeply about the role that your organization plays in society?" she asks. "Managers need to step back and say, 'Are we attracting people with the right values? '"

Critics of incentive-pay plans also point out that the negotiations for a major gift can be painstakingly long and complex, making it difficult to sort out who should get credit. For example, Ms. Kelsch says, when she was a fund raiser at the University of California at Davis in the 1990s, a faculty member in orthopedics at the medical school sponsored an event to thank everyone who was involved in the handling of a $5-million gift. Some 41 people were honored at the party.

"So many hands touch a gift when you work at a large organization that it's difficult to determine who should really be rewarded," says Jane F. Karlin, national director of development at Hadassah, the Women's Zionist Organization of America, which does not have an incentive-pay plan. "Who got the gift? Was it the researcher who first identified the person as a wealthy alum or symphonygoer? Was it the person who wrote the brilliant program that this person supports? Was it someone who played golf with this person and planted the seed?"

Some development directors say they have found ways other than money to retain employees and keep them motivated. Tom Mitchell, the vice chancellor for advancement at the Irvine campus, says employees could be looking for other things: the opportunity to do creative work, a boss they respect, collegial co-workers, or greater flexibility to work from home.

"I'm working on the other side of it -- trying to create the ideal workplace," Mr. Mitchell says. "If you compensate fund raisers fairly and they feel stimulated, it will take a lot of money to get them to move."

Others concede that money is a central motivating factor, but argue that incentive-pay plans should be used only in special cases: to keep extremely talented employees. Michael R. Maude, a fund-raising consultant in Lawrence, Kan., says he recently worked with an organization that wanted to retain a major producer whose pay had reached the limit of his employer's salary structure. The group had already twice matched offers the fund raiser had received from other organizations. When the employee came back a third time, the organization suggested an individually tailored incentive-pay plan instead.

"It made everyone happy," Mr. Maude says. "They were able to keep him, and he was able to make the kind of money he wanted."

Broad-based incentive-pay plans are a waste of time for busy nonprofit managers, he says: "Setting things up that will take a lot of time to track can be self-defeating. Instead of spending time with prospective donors, you're spending time adding up how many times you've contacted people."

Even the creator of the now-abandoned University of California at Irvine plan has gone somewhat cold on the approach. In a 1999 article he wrote for the magazine of the Council for Advancement and Support of Education, James Asp urged his colleagues to consider incentive-pay plans. But in his new position, as executive director of development at Memorial Sloan-Kettering Cancer Center, in New York, he uses the more standard style of awarding merit raises based on how employees fare in annual reviews.

"I've come to think that you don't really need to have it be quite so formalized," Mr. Asp says. "You can be just as effective if you do a really good job recognizing performance within your regular process."

Nevertheless, Ms. Murray, of the Association of Fundraising Professionals, believes that some nonprofit managers may be shying away from incentive-pay plans simply because they don't like the difficult and stressful work of rigorously assessing performance, and sharing that frank review with employees.

"It's a lot easier," she says, "to just check some boxes on a form, and say 'OK, you're going to get your 4-percent raise again this year.'"

Does your charity reward its best fund raisers with incentive pay? If not, would such a system work at your organization? Join the discussion in the Job Market online forum.