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Kelsey Harrington – Ethical Dilemma Paper

Executive salaries return to the public eye each year when tax forms are released,

predictably grabbing negative attention from the public and leaving them to wonder, how much

should nonprofit employees get paid? There are many points of view surrounding this ethical

dilemma, a debate that is long-standing in the United States. Many factors influence the

compensation of employees—for profit or not—and many factors influence the way that the

public receives and views information regarding this compensation. This dilemma often leaves

people scratching their head, begging for answers to a few questions. Should nonprofit

organizations lower the amount that they pay their employees so that more money goes directly

to services or should they take an approach that attracts and retains a talented workforce that can

and will increase their funds for services? How should nonprofits address the major pay gap

separating their top leaders and frontline workers? How do nonprofits keep overhead low while

simultaneously meeting demands of Generation Y employees?

It is important to note that each of these questions pins us in a corner and makes us debate

good versus good. It is also important to note that there is not a singular right answer for whether

nonprofits should pay more or give more. Dan Pallotta argues that “in the for-profit sector, the

more value you produce, the more money you can make. But we don’t like nonprofits to use

money to incentivize people to produce more in social services” (Pallotta). For many of us, it is

counterintuitive to think that one could make “good” money by helping others, but we find it

natural that individuals (in for-profit work) make “good” money not helping anyone. We tend to

use this as a backwards frame of ethics, but one that Dan recognizes has extremely negative side

effects. Society gives us two mutually exclusive options: do well for yourself and your family or

help the world (Pallotta). We inevitably make philanthropists and board members out of business
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people who would rather donate money to charity in massive amounts that are still smaller than

the pay cut they would have to take to actually work at a nonprofit instead, even if they care

about the mission deeply. By offering these individuals work that is compensated in such a way

that they can even consider it, we would bring talent into our organization that could be arguably

more valuable than the cost of a compensation increase. Of course, this would have to be at the

expense of pulling funds from somewhere else (typically programming) or raising additional

funds.

It is hard for many to look at the papers, see the larger-than-life pay figures of the

executives of some of the country’s largest nonprofits, and not question whether these figures

represent fair compensation or whether they take from the social mission the organization they

exist to serve. Nonprofit executives, on average, earn less than their for-profit counterparts and

according a 2016 Charity Navigator compensation study, that number comes in at $123,362

(Dubb). However, is important to remember that nonprofits are staffed with many more

employees than those considered “executives,” and therefore, the focus must shift to whether

“wages throughout the organization are consistent with nonprofits’ social justice missions”

(Dubb). Furthermore, Laura Otten, director of the Nonprofit Center at LaSalle University in

Philadelphia, emphasizes that the pay gap between executives and frontline workers in

nonprofits has negative ethical and moral implications, especially in the social services sector,

where these frontline workers are hardly making more than the people that they serve and

therefore are left vulnerable to rely on services that they themselves are offering to others

(Dubb). Tax forms are “easy media copy” and focus the attention on “wealth” of nonprofit

executives, but the irony is that many nonprofit employees find themselves in what the Nonprofit

Quarterly calls the “nonprofit wage ghetto.” While home health care represents the fastest rate of
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job growth in the United States, 55 percent of their employees find themselves at 200 percent

below the federal poverty line (Dubb). In fact, a 2007 Medicaid study revealed that “42 percent

of all direct service workers lived in households that relied on some form of public assistance”

(Dubb). To fight these frightening statistics, organizations such as Resources for Human

Development are promoting pay equity, focusing on the importance of acquiring and retaining

great leadership while simultaneously learning to better compensate frontline staff.

Unfortunately, this organization, while a leader in this fight, only “limits CEO compensation to

no more than 14 times the lowest-paid employee” (Dubb). While this ratio seems high, many in

the field are thankful for the consideration of a ratio at all.

Perhaps one of the most recently added factors in debating nonprofit wages is the new

generation of workforce, Generation Y, and the different preferences for compensation in

comparison to previous generations. This addition makes the debate even trickier, as nonprofits

feel the pressure to adjust for these labor demands. According to Jasmine McGinnis, nonprofits

today will struggle to attract and retain young and educated Gen Y-ers because they value

compensation from employers and this could explain why this generation leaves positions more

often (McGinnis, pp. 343). Her research found that sixty-four percent of members who are

current nonprofits employees have reported financial concerns associated with committing to a

full career in the field (McGinnis, pp. 344). Furthermore, Gen Y-ers consider salary, benefits,

and opportunities for professional growth as the most important factors in considering a job

(McGinnis, pp. 344-45). To keep up, nonprofits must choose how they are going to compensate

and change perceptions of their sector to attract new talent who may otherwise be passionate and

suited for the job itself. At the end of the day, this dilemma is people-centric. Working in the

nonprofit sector should truly be about dignity and respect, as Dean Pasic calls it “the dignity
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business” (Pasic). There is dignity is self-sufficiency (or not having to rely on the services your

organization provides) and the ability to rise into higher level positions. Perhaps this generation

of employees wants to help other find dignity and respect that they are worthy of while also

finding such for themselves in a job. Compensation can play a big role in this.

While delivering this Ethical Dilemma Topic Paper, I have gathered four different

sources that my research stems from: 1) a TED Talk, 2) a news article from Nonprofit Quarterly,

3) a scholarly journal article from the Public Administration Quarterly that I located on JSTOR,

and 4) short reading by Dean Pasic, “The Human Needs Index- A Partnership Between the

Salvation Army and the Lilly Family School: The Dignity Business”, that we covered when

discussing how we should give. I would like to provide further information about each of these

authors’ expertise and elaborate on how each of these enhanced my understanding of this

dilemma.

Dan Pallotta’s TED Talk” is titled “The Way We Think About Charity is Dead Wrong”

and highlights the ways we approach for and nonprofit organizations with two separate rule

books. Dan Pallotta is an American entrepreneur, author, and humanitarian who believes that

nonprofits exist in one of two camps, the pie growers or the pie givers. His experience and

education in business influence his investment and long-term oriented opinions of how

nonprofits should spend their “pie.” This TED Talk and article together helped me to put to

words the two opposing sides and societal expectations that belong to this debate and helped me

to build framework to use when thinking about whether nonprofits should pay or give.

Steve Dubb’s news article in Nonprofit Quarterly, “Fighting the Miscasting of Nonprofit

Salary Issues: Philly Nonprofits Advocate for Pay Equity,” enhanced my understanding of this

dilemma by giving me data that begins to quantify the true pay inequity between entry and top
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level nonprofit employees. This article showed me that this issue runs deeper than simply the

public attention during tax form release season. Dubb is a nonprofit professional in the field of

community wealth building where he has expertise in asset-based approaches to social problems.

This expertise shaped the way he approached presenting facts about pay inequity.

Dr. Jasmine McGinnis, author of “The Young and the Restless: Generation Y in the

Nonprofit Workplace,” is a professor at The George Washington University with a background

in development and specialized research in philanthropy, international grantmaking, governance,

and wage equity. Her expertise is in conducting research that tests whether the “same old” ways

that nonprofits have functioned will sustain in the future, and if not, what ways nonprofits should

adapt to find success. Her piece helped me to better understand this dilemma by presenting both

qualitative and quantitative information in regard to the Generation Y factor of this dilemma.

Finally, Dr. Amir Pasic, author of short piece, “The Human Needs Index…,” has an extensive

background in philanthropy and academia and expertise in international affairs. His piece played

a simple, yet key role in how I understand this dilemma—it brought me back to what is at the

core of this issue: people. At the end of the day, this is a right versus right dilemma because we

are debating whether to fairly compensate people who are helping people—most of the time—or

to spend that money on programs to help people.

The first course of action that I would like to identify to address this dilemma is focused

on the first factor: whether nonprofits should pay more or give more. I recommend that the

nonprofit sector focus first on its employees in a way that fairly and competitively compensates

them for their work and the value they offer’]][ the organization. For me, this is truly a question

of value and long-term investment. In short, I recommend nonprofits pay their employees more.

In terms of the pay inequity between top level leadership and frontline workers, I highly
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recommend that nonprofits take steps to close that gap by bringing top level pay down and

raising frontline line pay so that there is a redistribution of wealth within their organization that,

once again, shines a light on the value that they place on their employees who are boots-on-the-

ground fighting for their mission and directly serving others. Lastly, in terms of attracting and

retaining members of Gen Y, I recommend that nonprofits incentivize these prospective

employees by emphasizing overall compensation packages that are perceived as valuable, even

when they cannot always fully compete with a for-profit counterpart.

One overarching theme that I found to be vital to this ethical dilemma when evaluating it

with the AFP Code of Ethics, a tool often used by philanthropic fundraising professionals, was

that compensation cannot be at all influenced directly by contribution to the organization. One

way that for-profit organizations can offer employees additional compensation is through

bonuses, profit sharing, gainsharing, etc. This is one specific nonprofit professions, however, this

code specifically outlines that compensation for a fundraiser may not be based on performance,

percentage of contribution, special considerations, commissions, or finder’s fees. In addition,

overhead can only be pulled from funds that are not attached to donor intent within a separate

facet of the organization. This has influenced the way that some nonprofit professionals have

been paid in the past and continues to regulate how they should be compensated in the present

and future. It is extremely important that when approaching compensation, nonprofits are

prepared to (sometimes creatively) find ways to increase compensation for employees, but not

under any of these above outlined pretenses. Additionally, it is important that depending on your

organization, you follow ethical guidelines for compensation in that particular field or subsector.

In conclusion, this ethical dilemma runs deep and wide as it circles around the right

versus right issue of nonprofit compensation. In this response, I dove deeper into three of the
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most current, major parts of this dilemma: whether nonprofits should give more or pay more,

how the sector can shrink the pay gap between top level leadership and frontline workforce, and

how nonprofits can recruit young, educated talent in Gen Y who have the passion for the cause,

but put pay ahead of passion often times. Previously, I offered three courses of action—one from

each of the major factors—to take to begin to approach and work through this dilemma. The

final recommendation that I would like to make is to become more of a pie-grower, to pay more

than give more. At the end of the day, how much you compensate an employee truly speaks to

the value that you place on them as part of your organization and the value coming from how

they promote the work that you are set out to achieve and social issues you are set out to solve.

My rational for this recommendation is twofold: it comes from the data showing future

generations straying from pursuing careers in the nonprofit sector due to pay and it comes from

the concept of pie growing. Simply put, nonprofits must understand that overhead is not the

enemy of the cause, but rather can be exactly what they need to grow. The steps I recommend

taking to achieve this is to 1) evaluate the size and scale of your pie, 2) determine the growth you

desire for that pie as a whole, 3) identify what a fair and competitive wage would be for your pay

levels, 4) connect your growth goals with your donors so that they understand that overhead is

not the enemy, and 5) measure progress towards your growth, and 6) re-evaluate pay and adjust

as you go. As Dan Pallotta harps on, we must shift the perception of nonprofit pay and overhead

in general so that our headstones do not read “we kept overhead low”, but rather, “we made a

true difference in this world.”

Bibliography
Dubb, Steve. “Fighting the Miscasting of Nonprofit Salary Issues: Philly Nonprofits Advocate

for Pay Equity.” Nonprofit Quarterly. 22 January 2018. Accessed 2 April 2018.
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https://nonprofitquarterly.org/2018/01/24/fighting-miscasting-nonprofit-salary-issues-

philly-nonprofits-advocate-pay-equity/

“Code of Ethics.” Association of Fundraising Professionals. Adopted in 1964, adapted in Oct

2014. Accessed 21 April 2018. PDF.

McGinnis, Jasmine. “The Young and the Restless: Generation Y in the Nonprofit Workforce.”

Public Administration Quarterly, Vol. 35, No. 3 (FALL 2011), pp. 342-362. SPAEF.

Accessed 19 April 2018. http://jstor.org/stable/41506761

Pallotta, Dan. “The way we think about charity is dead wrong.” TED, ideas worth spreading.

TED Conferences, LLC. March 2013. Accessed 10 April 2018.

https://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wron

g?language=en

Pasic, Amir. “The Human Needs Index- A Partnership Between the Salvation Army and the Lilly

Family School: The Dignity Business.” 6 November 2017. Accessed 31 March 2018.