May 19, 2009

Low Salaries Hold Charities Back, Author Argues

During graduation season, commencement speakers like Michelle Obama exhort young people to give back and change the world, but the reality is that they face a stark career choice, Dan Pallotta writes on Free the Nonprofits, a blog on Harvard Business Publishing’s Web site.

New graduates can dedicate themselves to charity or work for their own financial security, but they can’t do both, he argues.

“We say to students who choose charity, You must watch your classmates who chose the for-profit sector pass you by on the economic highway — buy homes in better neighborhoods, send their kids to better schools, drive safer cars, take better care of their aging parents, indeed serve on the boards of and direct the very charities that employ you,” writes Mr. Pallotta, the author of Uncharitable: How Restraints on Nonprofits Undermine their Potential. “But you, because you have chosen to help the indigent, you must sacrifice — you can have none of this power, none of this security.”

He cites a Business Week survey conducted several years ago of Harvard MBA’s 10 years out of business school that found their median annual compensation was $380,000. At the same time, says Mr. Pallotta, the average compensation of a chief executive of a hunger charity was $84,000.

“We’re not going to get many people with a $380,000 annual earning potential to make a $296,000 annual sacrifice to run a hunger charity,” he writes. “It’s cheaper for them to donate $100,000 a year to the hunger charity, get a $50,000 tax savings, still be ahead by $246,000 a year, and have a lifetime of huge earning potential still awaiting them.”

For the nonprofit world to be able to attract top talent, it need to narrow the gap between nonprofit and for-profit salaries, Mr. Pallotta argues. “It is time that our vision of change incorporated a vision of a whole person,” he writes. “We must allow those who dream a dream for others to dream a dream for themselves as well.”

What do you think? Are low salaries holding nonprofit organizations back? Are there other obstacles charities face as they try to attract highly skilled employees?