What happens when you don’t pay a living wage

This article is in response to a Forbes interview with Lauren Burke, called “The Martyr Mentality: How A ’30 Under 30′ Lawyer Qualifies For Public Housing”

In 2013 lawyer Lauren Burke partnered with three of her former clients and founded Atlas: DIY (Developing Immigrant Youth) a cooperative empowerment center for immigrant youth and their allies. Lauren Burke talks about living on less than minimum wage in New York, and qualifying for public housing.

She says,

“Given the way things are currently set up, this is a zero sum game. If I take even $5,000 to pay myself a larger salary, I’m taking it away from my clients — undocumented and trafficked immigrant young people in the U.S. — who Atlas was set up to serve in the first place. I talk to a lot of people who are running non-profits and they all echo this experience: Sometimes the blame falls on the shoulders of funders who refuse to pay the founder and team members what they are worth, and other times the government eats up half the funds in the reporting they require.

But if I’m being honest, I am also a part of the problem. If all non-profits banded together and had a unified message to donors that higher staff salaries are a key component to a non-profit’s success, I have to believe donors would respond in turn. They’d be forced to. I’m not saying it’s an easy ask. The system is set up in such a way that the income gap between for and non-profit worlds seems just an inevitability, even if we recognize the pitfalls in such a society. But non-profit workers have somehow been made to believe that our low paying salaries are a source of pride and show we truly care. And that internalization is a big part of the problem.”

 

So, what we have is a vicious cycle, between nonprofit workers not demanding higher salaries, board and leadership demanding lower salaries, and funders demanding lower salaries. Overlapping circles of oppression to say why we aren’t paid more. What’s a nonprofit worker to do?

 

To say that we should insist on higher salaries means that we should definitely ask for them, but as Dan Pallotta covered in his work, Uncharitable, many nonprofits are unwilling to pay due to a puritan mindset that people should not “profit” off of charity.

 

We do have to name and claim what is going on. Donors are not the problem as much as our staff and board expecting us to work for less. And us accepting less.

The vast majority of the 1.2 million nonprofits in the US make under $75,000 per year. See Guidestar.org for all of the tax documents to see just how few nonprofits would be able to pay something like a basic living wage to every employee. But that doesn’t mean they can’t pay people a part time wage at a higher dollar value.

 

This is an important conversation to have now. Why?

 

According to The Guardian, we are still in an economic recession due to income inequality.

 

Where do most people work?

 

Nonprofits.

 

Nonprofits are an economic driver to our North American economy.

 

If we were one unified industry, we would be one of the USA’s largest, representing $1 Trillion in revenue. According to a 2012 report by the Center for Civil Society Studies at Johns Hopkins University, nonprofit employment represents 10.1 percent of total employment in the United States in 2010, with total employees numbering 10.7 million.

1 in 10 people in the US work at a nonprofit, with most people working in schools and healthcare.

Nonprofit employment by sector is approximately 57% for health services, 15% for education, 13% for social assistance, 7% for civic associations, 4% for other, 3% for arts and culture, and 2% for professional services. Even in Texas, which we associate with ranching and oil fields, nonprofits are the largest industry.

 

So if we do not pay fundraisers or any other nonprofit staff the wages they need to not just survive, but pay off debts and live comfortably, we are dragging down the entire country.

 

As Umair Haque, an economist at Havas Media states, guaranteed minimum income and a real living wage help make our society stronger. He writes, “Every single person in the world should receive a basic income before the richest .01% are allowed to capture another dime.” We need to keep talking about how to raise wages for nonprofit workers if we want trickle up economics to work.

 

I do work to help educate nonprofit leaders on how to negotiate their salaries and empower themselves in their nonprofit careers. It’s NOT taking money away from the mission to ask for enough money to live on. Why?

 

When you don’t pay a living wage, you have massive turnover. The average tenure of a nonprofit fundraiser is 12-18 months. Penelope Burk, author of Donor Centered Fundraising and Donor Centered Leadership, has done an excellent job in researching how much a nonprofit loses when it loses a fundraiser. She has done 30 years worth of research on thousands of nonprofits. Look up her work, cygresearch.com.

 

If a nonprofit loses a fundraiser before the end of a 18 month tenure, (the usual scenario) then that nonprofit is losing far more than its gaining in the short term by paying lower wages. It can be in the hundreds of thousands or millions of dollars lost to pay a fundraiser low wages and lose them. Unfortunately this is the cycle for most nonprofits. Here’s the statistical proof.

Penelope Burk writes, in her research report, Donor Centered Leadership,

“Staff turnover affects everyone.”

How?

1. A fundraiser new on the job needs time to understand what he is selling (the organization and its programs and services).
2. He needs training on systems and procedures.
3. If he works in major gifts, he needs time to get to know his donors.
4. Donors need to process the departure of the old person, and the incoming new person, and decide if they want to keep giving (Hidden cost-you don’t usually hear from donors who leave.)
   
5. If he is a copywriter doing direct mail, he needs more time initially to produce appeals and communications.
6. Before he is hired, staff take time away from their own jobs to do pieces of his job (hidden cost)
7. Staff need to take time to post the job, cull the resumes, read cover letters, and schedule and perform interviews (Another hidden cost)
8. Staff need to take time to train him, which takes them away from their other duties. (Yet another hidden cost)
9. All of this necessary learning time creates a productivity gap that will result in less money being raised.

 

Naturally, the time he spends up front learning the job will eventually make him a better fundraiser. His productivity will improve as his knowledge and confidence grow, but in that early period of employment, allowances need to be made. This period of lesser productivity-or productivity gap, relates to a combination of costs associated with orientation, training and closer supervision plus monies not raised.

How long does that initial period last? Our research determined that non-management employees require ten to twelve months to get to the point where they feel like they are working as fully functioning members of a team. Realistically then, when setting fundraising goals for new staff, employers need to have reduced expectations for performance for up to a year.”

 

On top of that, for the people responsible for hiring and training the new fundraiser, as well as compensating for the fundraiser after they leave, there is a significant cost and drain on their time.

Here’s a conservative estimate of how much it costs to replace a fundraiser who is paid less than $50,000 per year. (From Cygnet Research)

 

Above the line costs	Value
Accrued vacation	$545
Direct hiring costs (Advertising position)	$1000
Salary increase to new hire @5%	$2125
Data system training for new staff	$2000
Productivity gap-Money not raised due to staff turnover (% f $175,000 goal based on 250 work days/year)
Wind down period 5 days, based on salary f $42,500	$817
Job vacant for one month	$7250
Productivity gap in year 1 for new employee (20%)	$35000
Support from colleagues to hep new staff member get up to speed 5 days	$817
Total cost to replace a non-management employee	$49,554
Cost of staff turnover as a percentage of salary	117%

 

Wow. It costs your nonprofit over 100% of what the fundraiser makes to replace them, and that’s just assuming that there is only one month when you don’t have a fundraiser in place!

In reality, it is much more likely that there is a 4-6 month gap in between fundraising staff, or longer.  Your costs mount the longer there is no fundraising staff.

 

Impact of shorter and longer tenures extended over four years (From Cygnet Research)

# of staff replaced and cost of staff turnover @$49,554/staff	Year 1	Year 2	Year 3	Year 4
16 month tenure
-number of staff replaced	0	4	4	4
-total cost of staff replacement	0	$198,216	$198,216	$198,216
36 month tenure
-number of staff replaced	0	0	4	0
-total cost of staff replacement	0	0	$198,216	0
Cumulative cost of staff replacement by end of fourth year
16 month tenures	0	$198,216	$396,432	$594,648
36 month tenures	0	0	$198,216	$198,216

Wow, look at these numbers!

It costs your nonprofit a whopping $600,000 to have fundraising turnover for three years running!

This is a serious hidden drain on your nonprofit budget. NO small nonprofit can afford to lose this much money! But what so often happens is that it looks like fundraising income stays stable or goes down, and we wonder why we’re “running in place” when we keep hiring and firing new people to fundraise.

 

Cost/benefit of a non-management employee who stays for three years (from Cygnet Research)

Length of Stay	Direct and Indirect costs
Year 1	$49,554
Year 2	0
Year 3	0
TOTAL	$49,554
Revenue Raised over 3 years	$525,000
Cost of hiring as a factor of revenue raised	9%

Wow, look at this! Your hiring cost is only 9% of what your fundraiser will actually be raising for you. Who WOULDN’T like an extra half million dollars for their nonprofit?

How can you get that sweet $500,000? 

KEEP YOUR GOOD FUNDRAISER.  Invest in their training. Help them keep learning, always. Give them flexible work from home options. Do whatever it takes to keep them if they start to raise you money after 12 months.

Bottom line? It is far more expensive for your nonprofit to have fundraiser turnover than it is to pay a fundraiser a better wage at the start and support them to stay at your organization.

 

Penelope Burk writes,

“You get what you pay for.

CEOs were asked, “What is the number one issue that caused your preferred candidate for the top fundraising position to decline your job offer,” and 58% of them cited the salary they were willing to pay.

Among CEOS who have experienced this, 44% said that salary is the number one reason for premature resignation of their chief fundraiser.”

“Development professionals-Among respondents who were planning to leave their positions, roughly 40% were leaving for higher pay elsewhere. Regardless of category, leaving or higher salary elsewhere was the number one response by a wide margin.

All this evidence points to an inescapable conclusion: salary is the number one reason why fundraisers leave for another position or why your preferred candidate opts at the last minute for someone else’s job offer.

 

What can we do to keep your nonprofit from losing all of this money?

Buy Penelope Burk’s book, Donor Centered Leadership, and show it to your board. DO it now. This will help stop your nonprofit from wasting $500,000 in the next three years

For donors: Learn to ask different questions about the impact of your nonprofit, aside from “overhead.”

What do YOU think? How do you think we can get a higher nonprofit wage?