Can you say more about why it’s bad for employees to benefit from the charity? Does this philosophy apply to other procurement, or only labor?
As a donor myself, I care about results and I’m completely fine with a charity paying obscene bonuses if that’s what it takes to get results.
As Dan Pallotta noted in his TED talk, I think there’s a weird double standard in social recognition for charity work, where the person giving 10% of their income gets more accolades than someone making a 20% pay cut to do charitable work, if the resulting pay is still considered “high” by nonprofit sector standards.
I don’t think what I said was inconsistent with Pallotta’s insight. I think what I actually proposed was rather narrow, and I’m having a difficult time applying most of your questions to it.
On procurement, same standard as for employees: If market rate for widgets is $20, it’s not effective (or even generally appropriate) for a charity to pay $25 for widgets. Paying $20 is consistent with my bright-line rule. One would not speak of the widget-seller who sells to a charity at market rate as a beneficiary of the charity; nor would an employee who makes no more than market rate be such.
In contrast, there are organizations that employ individuals (e.g., individuals with disabilities) at more than the market rate for their services for the purpose of benefitting those individuals. Those employees are properly considered beneficiaries of the program. If you’re running a vocational rehabilitation charity, that’s fine—because the very purpose of your charity is to benefit your employees. But that model is not appropriate for most charities. While vendors and employees may incidentally benefit from the charity (by receiving fair compensation for their wares and labors), they should be giving something of at least equal value (their wares and labors) as determined by the market.
What I said would be perfectly consistent with someone taking a 20% pay cut from market rate to do charitable work, or even that person being paid full market rate. I would generally oppose someone being paid more than market rate to do the same work. And that can be a problem with lower grades in standardized pay scales, especially those in which compensation for the top grades is only 2-3 times higher than that for the lowest grades. Looking at the payroll of many government organizations reveals this potential issue with those kinds of pay algorithms.
If the market is paying “obscene bonuses,” then the charity paying similar bonuses to similarly-situated employees with similar levels of performance is acting consistently with a cap of market-rate compensation.[1]
I do think that too many nonprofits—not speaking of EA, just in general—are run too much in the interests of employees and not enough in the interests of the claimed beneficiaries. To pick two examples from different sides of the social spectrum, I specifically think this about many churches and universities. In contrast, in a medium+ sized for-profit, executives usually have strong financial incentivizes to not authorize salaries that do not further the corporation’s profit objectives. In smaller ones, the owner usually is involved enough that the principal-agent problem is mitigated.
There isn’t any similar mechanism available for most non-profits. Boards, donors, and other potential checks often aren’t that effective. Thus, I think a norm that non-profits shouldn’t pay more for the same work than for-profits would pay for that work makes sense. Given generally prevailing patterns of non-profit compensation, that boundary check will rarely be an issue . . . but I think it is an important check to have in place.
Moreover, this is neither the rationale that GWWC gave for its pay scale nor one that would make much sense for a grade-based pay scale such as the one under discussion. If a charity is handing out “obscene” salaries and bonuses, it should be done on employee-specific evaluative criteria linked to the employee’s specific contribution to meeting business objectives, not to an algorithm.
Can you say more about why it’s bad for employees to benefit from the charity? Does this philosophy apply to other procurement, or only labor?
As a donor myself, I care about results and I’m completely fine with a charity paying obscene bonuses if that’s what it takes to get results.
As Dan Pallotta noted in his TED talk, I think there’s a weird double standard in social recognition for charity work, where the person giving 10% of their income gets more accolades than someone making a 20% pay cut to do charitable work, if the resulting pay is still considered “high” by nonprofit sector standards.
I don’t think what I said was inconsistent with Pallotta’s insight. I think what I actually proposed was rather narrow, and I’m having a difficult time applying most of your questions to it.
On procurement, same standard as for employees: If market rate for widgets is $20, it’s not effective (or even generally appropriate) for a charity to pay $25 for widgets. Paying $20 is consistent with my bright-line rule. One would not speak of the widget-seller who sells to a charity at market rate as a beneficiary of the charity; nor would an employee who makes no more than market rate be such.
In contrast, there are organizations that employ individuals (e.g., individuals with disabilities) at more than the market rate for their services for the purpose of benefitting those individuals. Those employees are properly considered beneficiaries of the program. If you’re running a vocational rehabilitation charity, that’s fine—because the very purpose of your charity is to benefit your employees. But that model is not appropriate for most charities. While vendors and employees may incidentally benefit from the charity (by receiving fair compensation for their wares and labors), they should be giving something of at least equal value (their wares and labors) as determined by the market.
What I said would be perfectly consistent with someone taking a 20% pay cut from market rate to do charitable work, or even that person being paid full market rate. I would generally oppose someone being paid more than market rate to do the same work. And that can be a problem with lower grades in standardized pay scales, especially those in which compensation for the top grades is only 2-3 times higher than that for the lowest grades. Looking at the payroll of many government organizations reveals this potential issue with those kinds of pay algorithms.
If the market is paying “obscene bonuses,” then the charity paying similar bonuses to similarly-situated employees with similar levels of performance is acting consistently with a cap of market-rate compensation.[1]
I do think that too many nonprofits—not speaking of EA, just in general—are run too much in the interests of employees and not enough in the interests of the claimed beneficiaries. To pick two examples from different sides of the social spectrum, I specifically think this about many churches and universities. In contrast, in a medium+ sized for-profit, executives usually have strong financial incentivizes to not authorize salaries that do not further the corporation’s profit objectives. In smaller ones, the owner usually is involved enough that the principal-agent problem is mitigated.
There isn’t any similar mechanism available for most non-profits. Boards, donors, and other potential checks often aren’t that effective. Thus, I think a norm that non-profits shouldn’t pay more for the same work than for-profits would pay for that work makes sense. Given generally prevailing patterns of non-profit compensation, that boundary check will rarely be an issue . . . but I think it is an important check to have in place.
Moreover, this is neither the rationale that GWWC gave for its pay scale nor one that would make much sense for a grade-based pay scale such as the one under discussion. If a charity is handing out “obscene” salaries and bonuses, it should be done on employee-specific evaluative criteria linked to the employee’s specific contribution to meeting business objectives, not to an algorithm.