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Commission-based Fundraising

By PhilanthropyAugust, 2015January 19th, 20245 min read

These pages have again seen the re-ignition of the longstanding debate over commission-based fundraising. Opinions have been expressed by industry consultants and fundraiser industry bodies. I’ve chosen, at my own peril, to dip into the discussion with the perspective of a funder and (social) entrepreneur.

The objections to commission-based fundraising are essentially (a) that it encourages the wrong behaviour from fundraising professionals, and (b) that the practice conflicts with the ‘charitable purpose’ principle of not for profits.

Certainly it is true that commissions (and especially salary as commission-only) can encourage staff to do the wrong thing. This is not just the case for fundraisers; the behaviour we get from employees is the behaviour that we reward. The fact is that employees will seek to meet their key performance indicators (KPIs) as they are stated, irrespective of what their employers actually want them to do. If we only reward short-term things, then employees will focus only on short-term things. If we reward a fundraiser purely on commissions, then they will not ‘waste’ time building relationships, but rather do whatever they can to maximise their commissions.

The commercial world is littered with stories of employees that did their utmost to meet their (often simplistic) KPIs, and in doing so worked against the greater interests of the company. The commercial world is similarly littered with the ashes of the companies that failed because they set simplistic KPIs that did not align the interests of their staff with the interests of the company.

Focussing on a specific reward practice for fundraisers as the root of all evil is both myopic and simplistic. The Fundraising Institute of Australia’s guidelines state that fundraisers should not be rewarded with a “percentage of total funds raised,” but stumble over themselves in saying that “performance-based remuneration” is acceptable. So we can reward good performance but we can’t directly link that reward to “total funds raised,” which is one of the main goals of fundraisers?

What the AFP, the FIA, and other industry bodies ought to say is that fundraiser remuneration should be established using a number of factors with the goal of bringing the fundraisers interests in alignment with that of the organisation. Those factors may include funds actually raised, and other measures pertaining to donor relationship and engagement. The ‘balanced scorecard’ in a performance measurement benchmark that is widely used and whose goal is go beyond simplistic measures of success like “total funds raised.” Tools like this should really be used for all employees in a not for profit, not just for fundraisers.

The other issue is the perceived barrier between the way companies and not for profits operate. To be sure, companies are motivated by delivering a financial return to their shareholders, and not for profits exist to serve a ‘higher,’ philanthropic cause. But again, this view is simplistic and antiquated, as the barrier between these two sectors is eroding before our eyes.

Social enterprises are commercial ventures that seek to deliver social outcomes. Impact investing is an emerging investment class that combines a commercial return with beneficial social or environmental impact. The barrier between the commercial and philanthropic worlds is blurring and will continue do to so.

Existing policies about fundraiser remuneration do not consider how they might work in this new world. But perhaps they don’t need to? Very specific policies on remuneration practices can and should be supplanted entirely by a balanced scorecard and other metrics.

I’ve written elsewhere on these pages about the need for both philanthropists and not-for-profits to act more like investors. Both invest resources in search of a goal. What distinguishes not-for-profits is that those goals are social in nature, often far more difficult to measure, and often take much longer to achieve than the stock market’s reporting cycle. That doesn’t mean we shouldn’t do our best to measure them, or to adopt best practice when it comes to recruiting and rewarding all staff. If staff do their job and meet their KPIs, they should be well rewarded even if they are driven by “self-gain”. After all, who are we to judge person’s motivation for their job?

I don’t have a problem with a fundraiser receiving a commission for their efforts, as long as it is part of a sophisticated system of performance measurement, accompanied by the appropriate transparency. This debate needs to go beyond those specifics, and encourage not-for-profits to find ways to ensure all staff are aligned with the mission of the organisation, and rewarded appropriately.

This was also posted at [eJewishPhilanthropy].

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