Thank you for the text and the interesting thoughts!
I don’t think charities will, or should, pay the same salaries as for-profits. They won’t do so because there are enough people willing to work for non-profits at lower salaries, and because all (EA) charities would effectively have to coordinate in order to pay salaries above the market rate for charity jobs. But they also should not do so, because that would actually reduce cost-effectiveness and therefore run counter to the purpose of charities.
Ideally, charities should structure salaries in whatever way maximizes cost-effectiveness. Suppose a charity needs to fill position X and could pay €100, €200, €300, or €400. At €100, nobody would take the job. At €200, the best candidate would create 100 units of impact. At €300, the best candidate would create 200 units of impact. At €400, there would be an employee who would create 210 units of impact. In that case, the charity should pay €300, regardless of what a comparable job would pay in the for-profit sector.
For-profits should actually follow the same principle as well, except that instead of impact, they optimize for contribution to company profit. If we assume that talented people are capable of contributing both to non-profit impact and to corporate profit, the question becomes: why are charity salaries lower on average? The answer is probably that people generally prefer working for charities.
In my view, there are several reasons for this. One important aspect is probably that many employees attribute the impact, at least partly, to themselves personally. Another aspect is certainly that working at a charity is often simply more enjoyable because you are surrounded by inspiring people, typically have more autonomy, and so on.
A similar dynamic exists in for-profit start-ups, which also tend to pay less than large established corporations, partly for those reasons. No start-up would say: “We’re going to pay as much as the big corporations.” Why shouldn’t a start-up make use of this advantage on the labor market? In my opinion, the same applies to charities.
Likewise, charities should also take advantage of the fact that they can pay less because employees attribute part of the impact to themselves, regardless of whether one thinks that attribution is justified or not. If someone believes that they will only get into heaven after death if they work for AMF, and is therefore willing to work for half the usual charity salary, then AMF should make use of that, for the benefit of the people whose lives can thereby be saved. (Of course, there are limits to this if the employee would suffer too much as a result.)
I also do not see the four stated advantages of for-profit-level salaries at charities:
“It would attract talent that otherwise would’ve been inaccessible because that talent wouldn’t have been willing to take as big of a sacrifice.” Under the method described above, charities can still pay high salaries if the output justifies it, thereby attracting very talented people. But if there are people who personally see no advantage in working in a charity environment, for example because they strongly prefer the clearly regulated structures of large corporations, and therefore demand higher salaries than equally talented people who are willing to work for less because they value the charity environment, then there is no need to attract those people specifically.
“It would allow less privileged groups to join the charity world that otherwise just wouldn’t have the means to take pay cuts like this.” The question here is how important reducing this social inequality is compared to the actual mission of a particular charity. Given that opening jobs to underprivileged groups comes with increased costs for the charity, one has to ask whether this is really the most cost-effective use of donated money. More generally, I think the focus should be on ensuring that everyone has enough money, rather than increasing salaries for selected positions within the charity sector.
“It would give employees a tangible measure to estimate how much impact they are having with their job.” In my opinion, voluntary salary cuts can always in some sense be viewed as donations, and therefore as a measure of impact, regardless of whether the baseline salary corresponds to for-profit or non-profit market rates. Whether those donations are the only contribution to impact is a separate question, but that question arises in both cases anyway.
“It would avoid discussions like here whenever NGOs decide to pay market-rate salaries.” First of all, I would not say that for-profits pay “market-rate salaries” while charities do not. There are simply two different labor markets: one for for-profits and one for charities. More generally, I think discussions about salaries are good. So from my perspective, avoiding such discussions is not an advantage.
The main point I’m trying to make is not that we should pay all people market-rate salaries, but that, at least, we should make this assumption in cost effectiveness calculations. Then actually paying those salaries would be the logical next step but maybe a step too far for marketing / market dynamics reasons.
Let me answer to two points you made:
In my view, there are several reasons for this. One important aspect is probably that many employees attribute the impact, at least partly, to themselves personally.
This is the core of what I’m trying to get at. I am trying to argue that the imaginary pay cut vs a comparable for-profit job the employees are taking is the relative impact they are having. Therefore when we do cost effectiveness calculations, we should factor that in, so we don’t overpromise cost-effectivness to donors. Because employees are also donors, just with their time instead of their money.
Another aspect is certainly that working at a charity is often simply more enjoyable because you are surrounded by inspiring people, typically have more autonomy, and so on.
This I fully agree with. So when comparing wiht for-profit salaries we should probably compare not with cut-throat banks but with companies that have a similar vibe/culture. I know that’s hard but some kind of estimate is better than nothing I think.
Thank you for the text and the interesting thoughts!
I don’t think charities will, or should, pay the same salaries as for-profits. They won’t do so because there are enough people willing to work for non-profits at lower salaries, and because all (EA) charities would effectively have to coordinate in order to pay salaries above the market rate for charity jobs. But they also should not do so, because that would actually reduce cost-effectiveness and therefore run counter to the purpose of charities.
Ideally, charities should structure salaries in whatever way maximizes cost-effectiveness. Suppose a charity needs to fill position X and could pay €100, €200, €300, or €400. At €100, nobody would take the job. At €200, the best candidate would create 100 units of impact. At €300, the best candidate would create 200 units of impact. At €400, there would be an employee who would create 210 units of impact. In that case, the charity should pay €300, regardless of what a comparable job would pay in the for-profit sector.
For-profits should actually follow the same principle as well, except that instead of impact, they optimize for contribution to company profit. If we assume that talented people are capable of contributing both to non-profit impact and to corporate profit, the question becomes: why are charity salaries lower on average? The answer is probably that people generally prefer working for charities.
In my view, there are several reasons for this. One important aspect is probably that many employees attribute the impact, at least partly, to themselves personally. Another aspect is certainly that working at a charity is often simply more enjoyable because you are surrounded by inspiring people, typically have more autonomy, and so on.
A similar dynamic exists in for-profit start-ups, which also tend to pay less than large established corporations, partly for those reasons. No start-up would say: “We’re going to pay as much as the big corporations.” Why shouldn’t a start-up make use of this advantage on the labor market? In my opinion, the same applies to charities.
Likewise, charities should also take advantage of the fact that they can pay less because employees attribute part of the impact to themselves, regardless of whether one thinks that attribution is justified or not. If someone believes that they will only get into heaven after death if they work for AMF, and is therefore willing to work for half the usual charity salary, then AMF should make use of that, for the benefit of the people whose lives can thereby be saved. (Of course, there are limits to this if the employee would suffer too much as a result.)
I also do not see the four stated advantages of for-profit-level salaries at charities:
“It would attract talent that otherwise would’ve been inaccessible because that talent wouldn’t have been willing to take as big of a sacrifice.”
Under the method described above, charities can still pay high salaries if the output justifies it, thereby attracting very talented people. But if there are people who personally see no advantage in working in a charity environment, for example because they strongly prefer the clearly regulated structures of large corporations, and therefore demand higher salaries than equally talented people who are willing to work for less because they value the charity environment, then there is no need to attract those people specifically.
“It would allow less privileged groups to join the charity world that otherwise just wouldn’t have the means to take pay cuts like this.”
The question here is how important reducing this social inequality is compared to the actual mission of a particular charity. Given that opening jobs to underprivileged groups comes with increased costs for the charity, one has to ask whether this is really the most cost-effective use of donated money. More generally, I think the focus should be on ensuring that everyone has enough money, rather than increasing salaries for selected positions within the charity sector.
“It would give employees a tangible measure to estimate how much impact they are having with their job.”
In my opinion, voluntary salary cuts can always in some sense be viewed as donations, and therefore as a measure of impact, regardless of whether the baseline salary corresponds to for-profit or non-profit market rates. Whether those donations are the only contribution to impact is a separate question, but that question arises in both cases anyway.
“It would avoid discussions like here whenever NGOs decide to pay market-rate salaries.”
First of all, I would not say that for-profits pay “market-rate salaries” while charities do not. There are simply two different labor markets: one for for-profits and one for charities. More generally, I think discussions about salaries are good. So from my perspective, avoiding such discussions is not an advantage.
The main point I’m trying to make is not that we should pay all people market-rate salaries, but that, at least, we should make this assumption in cost effectiveness calculations. Then actually paying those salaries would be the logical next step but maybe a step too far for marketing / market dynamics reasons.
Let me answer to two points you made:
This is the core of what I’m trying to get at. I am trying to argue that the imaginary pay cut vs a comparable for-profit job the employees are taking is the relative impact they are having. Therefore when we do cost effectiveness calculations, we should factor that in, so we don’t overpromise cost-effectivness to donors. Because employees are also donors, just with their time instead of their money.
This I fully agree with. So when comparing wiht for-profit salaries we should probably compare not with cut-throat banks but with companies that have a similar vibe/culture. I know that’s hard but some kind of estimate is better than nothing I think.