My Thoughts on Dan Pallotta’s “The Way We Think About Charity is Dead Wrong”- Part 1: Compensation Packages in Non-Profit vs. For Profit”

I know that there has already been a lot of buzz about Dan Pallotta’s “TED Talk”: “The Way We Think About Charity is Dead Wrong” (you can find the video here in case you haven’t seen it: ), but I wanted to get my opinion out there too (why not? 😉 )

One of Dan’s (if I may be so bold as to be a first-name basis with him 🙂 ) first points is something which I have also discussed in my blog (great minds think alike! 🙂 ): the fact that there seem to be two sets of “rules”; one for the non-profit sector, and the other for the “rest of the world”.

The first example Dan brings is compensation. He says that there is a general attitude (and I agree with him) that “people should not make money helping people”. I say, WHY NOT? What could be a better/more noble thing to do? The same argument can apply to why teachers should receive good salaries … they are educating our future generations. Dan points out that the prevalent attitude is that one must choose between “doing good for yourself and your family” (i.e. going into the for-profit sector and getting a higher salary) or “doing good for the world” (i.e. going into the non-profit sector knowing that you will earn a lower salary than you would if you worked in the for-profit sector). Dan then says something that makes me sad: every year, tens of thousands of the best and brightest minds are marching straight from university into the for-profit sector, because they are “not willing to make that lifelong economic sacrifice”. It is a shame, and it makes me feel sad for the future of the non-profit industry (and I guess a little proud that I decided to become part of it, because I consider myself to be among the “best and brightest minds 😉 ).

Dan brings an example from a Business Week survey, which did a study of compensation packages of MBA graduates 10 years out of business school. The median compensation of a Stanford MBA at age 38 was $400,000. In the same year, the average salary for the CEO of a medical charity was $232,000, and $84,000 for the CEO of a hunger charity. Essentially, the non-profit world is “hoping” for someone with a $400,000 talent to take a $316,000 (for example) pay cut EVERY YEAR, to work for their organizations. Dan says that there is also an idea out there that MBA graduates go to work in the for-profit sector because they are “greedy”. But he is quick to contradict this idea by saying that they might not be greedy, but rather smart. He explains that it would be cheaper for the person earning annually $400,000 to donate $100,000 every year (to the hunger charity, for example), which would enable him/her to save $50,000 on his/her taxes. S/he would also then become a “philanthropist”, most likely sit on the board of the charity, supervise the person who decided to become the CEO, and have a lifetime of power, influence, and praise.

So, what is my opinion about this? #1, it makes me nervous that perhaps the non-profit sector really is losing its best talent to the for-profit sector, for the reasons that Dan explained. I have seen some good (even great) leaders in the non-profit world, but I have also seen my share of mediocre and even (dare I say?) incompetent leaders in the NFP world. Perhaps this is the core issue and root of where this problem comes from?

It also leads me to question the legitimacy of what gives people the “right” to sit on a board, and also the fact that the board and its officers have the power over the CEO. I understand that it is supposed to be a matter of checks and balances, but if people are getting onto boards just because of their donations, why do they get the final say? This may perhaps be a heretical idea, but I think that perhaps the top professional in a non-profit (CEO or whatever the title is) should have the final say, not the board, as they are the person who has truly dedicated him/herself 100% to the charity.

OK, I’ve said enough. What do you think?

In my next post, I’ll discuss what Dan has to say about the “different rules” when it comes to advertising and marketing for charities versus for-profit companies (and of course give my opinion). Stay tuned! 🙂

Chava Ashkenazi
Jerusalem, Israel

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