National Center for Charitable Statistics

The Nonprofit FAQ

Can Fundraisers be Paid a Percent of the Amount Raised?
On August 2, 1998, Tony Poderis (Tony@raise-funds.com)
wrote to NONPROFIT:


Few topics generate more heated discussion in non-profit
organizations than whether development professionals (staff or
consultants) should be paid a percentage of the money raised,
receive commission-based compensation, or be paid a performance
bonus. Perhaps because it is a practice of giving financial
rewards to development professionals contingent upon the
achievement of fixed money goals, we can simply refer to it as
"contingent-pay." Whatever you want to call it, two things are
becoming more and more apparent.

1. The practice is increasing.

2. The practice is troubling the development profession.

I have witnessed stern admonitions regarding contingent-pay
practices from scores of development professionals and through
policy statements from the profession's governing bodies.

Despite those admonitions, many development professionals are not
only continuing to work for contingent-pay, but are accelerating
their acceptance of such compensation practices.

If the issue is of interest or concern to you or an organization
with which you are associated, my position paper on this subject
might be of interest to you. The article is titled:
"The Argument Against Paying Development Professionals Based Upon
The Amount Of Funds Raised For Non-Profit Organizations." It is
available on:
http://www.raise-funds.com/forum.html

In March, 1996 a series of interesting, and sometimes
controversial,
posts were added to Fundlist discussing the various arguments, pro
and
con, to the ethical prohibition against non-profit organizations
paying
fund raisers a percentage of funds raised and the ethical
prohibition
against fund raisers accepting such payments. This collection of the
posts was compiled by William Krueger (who is also a participant in
the
discussion). Transitional and introductory paragraphs written by him
(like this one) are in italics.


The discussion initially began with a post noting that a
non-profit
said that they had hired a company to write and submit proposals and
that the non-profit would pay a percentage of any grant that was
funded
... and nothing if the grant was not funded. This provoked a series
of
messages in general.


Al Field (field@msn.com) wrote: It is a good question
whether such fees
should be for a flat dollar amount or a percentage of the award. I
personally feel more comfortable with a flat fee, but percentage
charges
would not be common if a meaningful segment of the nonprofit
community
did not prefer this arrangement.

Judith Lindenau (jlindenau@netonecom.net) wrote:
Nothing gets my dander
up more than the 'holier than the rest of the world' attitude. And
now,
more than ever, we have to be smart and innovative managers. Maybe,
just
maybe, there are some lessons to be learned from the business
world...

Jeanne McWhorter, MSW, (gsswky@menudo.uh.edu) wrote: I
have been told
no self-respecting grant writer would do the percentage bit but that
seems a bit convoluted to me. If you are not willing to take a
chance
(especially with a new NP which has no money, like mine) then what
does
that say about your confidence in your ability?

To me, someone willing to accept a reasonable percentage
paid only if the grant is received is the more confident one. I
realize
I will probably draw a lot of flack for this but t he bottom line is
that when you are first starting, you can't pay a fee if you don't
get
the grant because you aren't even eating yourself.

A series of discussions revolved the whole idea of comparing fund
raisers to other professions ... and the professions that were
chosen to
compare fund raisers to seemed to vary depending upon the position
of
the writer.


Hugh Giblin (ulysses@acpub.duke.edu) wrote: I wonder
(ethically
speaking) what the difference is between a grantwriter doing a
proposal
on a contingency basis and an attorney doing a personal injury case
on
the same basis?"

Judith Lindenau, CAE (judith@netonecom.net) wrote: As
someone who works
with people who make their living through commission schedules, I
find
this a silly discussion. First, as someone implied, commission
payments
are not a sign of moral degeneration...not only do real estate
people
and attorneys use them, so does your computer salesman and many
others.
As a matter of fact, some would argue that commissions are the
fairest
way of getting paid for your skills that there is--and as a result,
the
ONLY way for women (for instance) and other minorities to receive
rewards equal to their talents in a given field.

Ina Frank (inafrank@ix.netcom.com) commented: One very
commonly-accepted analogy: Let's say you have a progressive disease.
That disease will create major illness or even death if you do not
receive absolutely successful treatment. Let's further say t hat
there
is no guarantee that *any* treatment available today will work, but
there's an off-chance that one or another courses of therapy might.
Or,
perhaps, a combination of several. You go to the finest doctors you
can.
They devote considerable time and resources and, of course, bring
their
years of training and expertise to your treatment. They prescribe
(and
you actually take) one or more medications. But maybe the one
medicine
or combination of medicines that will guarantee your successful
recovery
is simply not available today to treat your specific condition. Are
you
saying that the physicians should not be paid because of a situation
that is clearly beyond their control?

William Krueger (KCI101@aol.com) responded: Granted,
the doctor should
be paid... and I am sure that every doctor and fund raiser wants to
be
paid ... whether they succeed or not. But that isn't really the
point,
the questions asked really boiled down to how a charity is hurt by
percentage based fund raising. Would you, as a patient, have turned
down
a doctor who said you only had to pay him if he cured you? God
forbid we
start comparing ourselves to lawyers and Realtors, but isn't that a
better example? A Realtor spends hundreds of dollars of advertising
a
house, but it doesn't sell in six months. You fire the Realtor and
hire
one that sells your house ... who gets paid? And for that matter, in
this case, who is a better Realtor? Hearing both stories, who would
you
want as a Realtor? A strict interpretation of the ethic debated
leads to
a question - can you fire a fund raiser for not raising enough
money? If
so, then what is "enough" - isn't that an unstated amount and
thereby a
percentage? Also, what of the "ethical" fund raiser who won't take a
percentage but is overly optimistic - either through ineptitude or
naiveteò - and indicates more can be raised than is possible. The
charity pays the fund raiser for months to accomplish something that
can't be accomplished ... is that in the best interests of the
charity
... and its donors?

Ina Frank continued: Since I started the
physician:grantwriter analogy, and a few respondents have countered
by
comparing instead to lawyers and Realtors, let's put at least this
much
to rest:- By and large, lawyers and Realtors who work on contingency
and
commission, respectively, have *already* established their
practices,
set up and paid for day-to-day operations and are, in a sense,
fulfilling their missions. I sensed that most of the NP
organizations
who expressed concern about not having up-front money for
grantwriters
are either startups or smaller and not yet fiscally stable. Nothing
intrinsically wrong with being either, at early stages. Further:
Clients
who agree to a contingency arrangement with a lawyer have been
damaged
in some way and, presumably, are seeking only to recover actual and
other kinds of damages. Not at all like our organization that hasn't
even gotten up and running, yet.

It is my understanding directly from
Personal Injury lawyers that they do try to get a fixed retainer up
front whenever possible, even in contingency cases...thereby
guaranteeing them some compensation for their expertise and effort
expended. Sometimes, even on relatively simple cases that likely
will
settle before going to court for less than $50,000, these retainers
are
still as much as $5000 or $10,000. As for Realtors, our bizarre
system
generally allows them *only* to make money on sales, without
independently rewarding their efforts and expertise at all. Frankly,
I've always believed that to be most unfair. And, in an even
stranger
twist re commissions: Although the agents do want sales to go
through,
if I am a prospective *buyer* I should always have the nagging
suspicion
that 4% of, say, $250,000 is $10,000 while 4% of $275,000 gives the
agent another $1000 in his/her pocket. (And this person is working
for
*me*??? Riiiight) But let's also not decide that because a fund deve
lopment professional (and a grantwriter is a specialized one of
those)
believes in doing good for others, they should forfeit the right to
do
well, or at least adequately, for themselves and their families.

William Krueger then wrote: No doubt left that flat
fee basis for compensation of any professional is better for that
professional .... yet how does the consumer (either the person in
the
case of the lawyer or Realtor, or the organizati on in the case of
the
fund raiser) get hurt, or run the risk of getting hurt, by a
percentage
based compensation?

Which brought up a lot of conversation about why the prohibition
existed.


PERSONAL INTEREST OF THE FUNDRAISERS

Denice Rothman (DMR4CATS@aol.com): I believe that
grant writing is much
more than just looking for money. A lot, and I do mean a lot, of
time
and thought goes into putting together a strong proposal, including
our
extensive experience sitting on federal grant review panels, which
from
our perspective is what we are being compensated for. Our company
has a
very strong community service philosophy and we try to charge fees
that
are affordable, even by small organizations.

Ina Frank (inafrank@ix.netcom.com) added: One scenario
needs mention,
fershure: Let's say a crackerjack grantwriter seeking funds for a
worthy
organization or program does extraordinary research, develops an
appropriate proposal that follows all the rules of the funder, does
an
outstanding job of capturing the interest, heart & black
bureaucratic
soul of the grantmaker, and pitches the program honestly and to the
nth
degree. Let's further say that he/she devotes a couple of weeks to
this
task...what with interviewing the organization leadership, Executive
Director, Development Director, clients or what have you... and then
proceeds to draft, refine, and draft some more before submitting.
And
then let's say that, because we know how really top notch many of
our
grantwriters are, there are five -- or perhaps just two -- really
qualified, top proposals for just one pot of money. Are we to say
that
because we were #2 and not #1 that the grantwriter does not get a
nickel?

William Krueger (KCI101@aol.com) responded: An
attorney works for years
on a case, does a great job, spends thousands of dollars etc. etc.
etc.
and then some harebrained Los Angeles jury sides against him/her and
his/her client and gives $0 to his/her client (and the lawyer).
Nobody
loses sleep for the lawyer do we? How about the hundreds we spend
selling a client and then the client chooses some other company,
shouldn't we get that money back as well? Risk is a part of doing
business, unless, apparently you are fund raiser.

Denice Rothman added: One of the services the
consulting firm I work provides is grant writing and I have done
this
free lance in the past. We do not work on a percentage, but rather
establish a fee for the service we provide - writing the grant - and
we
clarify with our clients that there is no guarantee that it will be
funded - that is just not in our control. Much of the time we are
successful, but there are those times when we are not. However, we
have
still provided a service, and the risk involved is not the element
that
drives how much we are paid, it is the value we place on our work
and
the amount our clients agree to pay for the scope of work completed.
I
believe this is in line with the NSFRE philosophy.

William Krueger responded to Denice Rothman's
message:
I agree with you on an intellectual level
and observe the ethical standards of NSFRE, et al .... but, the
reason
as stated in your message is that you don't charge on a percentage
basis
because you want to stay in business. And that's my point ... is the
only reason this ethical standard is actually in existence is to
protect
fund raiser's cash flow? Basically, consulting firms (of which I own
one
that DOES NOT charge a percentage) are saying "sure we'll do the
work
and you pay us" therefore all the risk rests with the charity not
those
of us who hold ourselves out as experts. This is fine, but to tell
our
clients or charities that it is in their best interests to pay us
whether we succeed or not is a little unsettling to the
organizations.
How is this ethical standard against percentage based compensation
in
the best interest of the charities?

From which the discussion moved into determining how the
percentage
based prohibition is in the best interest of the organization.


BEST INTERESTS OF THE NON-PROFITS

Judith Lindenau (jlindenau@netone.netonecom.net)
indicated:
In this
case the nonprofit would have to come up with the money independent
of
the grant - a flat fee established for the work that is completed
seems
to be the fairest approach for all parties involved.

William Krueger (KCI101@aol.com) wrote: And wouldn't
the idea of paying
for the proposal whether it is funded or not qualify as a risky, if
not
poor, management decision?

Ina Frank (inafrank@ix.netcom.com) responded: Not at
all. The
organization's best management decision in this scenario is to
engage
and pay for competent, professional expertise. This is far, far
greater
than a fill-in-the-blank or boilerplate proposal. With limited pots
of
money available and countless organizations needing funds and
applying,
there is *never* a 100% guarantee of success.

To which, William Krueger responded: Your assumption
is that 1) the percentage based proposal was from "incompetent,
unprofessional" counsel - yet the grant, in the original example,
was
actually funded. So I'm not so sure that we could argue, in this
case,
that "professional, fee based counsel" could be anymore competent
... or
successful. And again, neither the organization, nor the funder,
would
have been "hurt" had the grant been funded or not. We also are
assuming
that it was a "boilerplate, fill in the blanks" type of proposal. I
have
my doubts that these type of "one size fits all" proposals ever get
funded .... so I believe a certain amount of "personalization" work
had
to be done. And the financial risk, in this case, was totally on the
shoulder of the grant writer, not the finances of a charity,
therefore
in the best interest of the charity.

Other than NSFRE, etc. saying
it is unethical, can someone provide solid, concrete, real life
examples
of how hiring a professional fund raiser and paying a reasonable -
and I
emphasize "reasonable" - percentage is *not* in the organization's -
and
I emphasize "organization's" - best interest?

To which Ina Frank responded: We're again
missing the point. Of course it's in the organization's best
interest to
get the most qualified professional available -- just as it would be
in
your best interest to get the most qualified doctor to treat your
specific condition. The only issue is how that professional or
doctor
should be paid. If your symptoms are only reduced by 10%, do you
only
pay the doctor a percentage of that 10%? Certainly not. You (or your
insurance company or what have you) would pay a specific amount
designated for that specific treatment. Same rules must apply to
fund
development professionals.

Which prompted this response from
William Krueger :
Sure, if we stick to the Dr. as a
fund raiser analogy. But we assume that a "professional and
competent"
fund raiser would only work for a straight fee or salary. Yet, in
the
original grant writer example we are discussing, they appear to be
competent and professional (and successful) .... except they charge
on a
percentage basis (an arbitrary standard set by NSFRE). Does Ms.
Frank's
statement still hold true if we assume a fund raiser can be
competent,
successful and professional ... and still taking a percentage?
Wouldn't
a charity be best off hiring a competent, successful and
professional
fund raiser .... who takes a reasonable percentage ? My point, and
unfortunately, some of our potential clients point, is really
simple.
THE ETHIC EXISTS TO PROTECT THE FUND RAISER NOT THE CHARITY. Which
is
probably good, but then we need to simply say it that way. We want
to be
thought of as Drs ... not lawyers, insurance agents or Realtors.

But do small, start-up non-profits have special dispensation for
paying
a percentage based compensation for grant writers?

Channing Hillway (channing@rain.org) said: I remember
that debate of
last year only too well. I have grown in my understanding of the
grant
proposal writing process since then. Those enthusiastic about having
grants for their organizations written on speculation --
commission --
tend to be those who are unlikely to get the grants for rather
fundamental reasons. They will not spend time or money on their own
for
what they recognize as, most probably, a losing proposition. They
already have someone, usually in-house, writing the grants likely to
be
funded. It's okay, on the other hand, if somebody is willing to do
the
work for free in the hope of working a miracle. Any thoughts that
they
might, as a gesture of thanks, provide some compensation to the
person
doing the work, beyond paying for a few lunches and buying some gas,
should be abandoned. They don't have the money. NSFRE's position
makes
profound sense and keeps everyone honest. It should be reaffirmed in
these rather uncertain times.

Which may have been rebutted by Jeann McWhorter
(
gsswky@Menudo.UH.EDU):
This is totally untrue for Diversity University as there are many
grants out there that we not only qualify for but are certain we'd
have
an excellent chance of receiving once we get our 501. We have been
included in two grant proposals already which were done through
other
schools. We were awarded the Annenberg grant and made the first cut
on
the FIPSE, a notoriously difficult grant to get. Our soul reason to
consider using a grant writer whose fee would come from the grant is
that don't have any money for ourselves yet, much less a grant
writer.
It's that simple. Most of us have devoted several years as
volunteers to
this endeavor and had only 1 of them paid. I, for one, am self
supporti
ng and spending 16 hours a day working on DU so I believe I have a
right
to be compensated for this before a grant writer.

William Krueger (KCI101@aol.com) also responded to
Channing Hillway:
If a non-profit doesn't think a grant has a
snowball's chance of being funded and the fund raiser evaluates the
situation and says, "sure, I'll take a chance on it and if it is
funded
you pay me x%", who gets hurt? Under this scenario (no percentage
fund
raising) a charity could be taken advantage of more easily by an
unscrupulous fund raiser. The fund raiser could say "I can't
ethically
take a percentage, but if you pay me a flat fee I'll write a great
proposal. No promises (because the fund raiser knows it won't be
funded), but I'll try" Under which scenario is the non-profit at
greater
risk?

Ina Frank (inafrank@ix.netcom.com) commented as well:
Responding to all
who have said that their organizations are just getting started and
have
no money: Perhaps you should step back, take a deep breath and
seriously
consider how committed your volunteer leaders are to you and your
mission if they haven't done some very serious fundraising and
contributing to you themselves at the outset. The latter to the best
of
their ability, of course. And while they may not have financial
resources, they can and should have the leadership capabilities and
direction (from either leaders or a qualified pro) to go get some.
Now
*that's* what a potential institutional funder will look at, and
quite
justifiably so. Good intentions are fine, and must absolutely be
there.
But they're not enough. Nohow. Put somewhat crassly: If you're not
willing to really do what you need to do to develop *and implement*
a
comprehensive Fundraising Plan -- in which grantseeking is but one
part
-- why should *I*, the grantmaker, care about your mission more than
you
do? To me, that's just logic. And there's the rub. No fancy
terminology,
no 5 or 7 golden rules to memorize. Just plain facts. Ah, but you
really, really care a lot about your mission? Then you'll figure out
a
way to make it work. *Then* you can come to me...after you've
developed
some solid credibility and fiscal responsibility. Then I'll consider
your request. And by then, you should have the resources to pay a
professional fee. Sure it's hard to get to that point -- but your
mission *is* worth it, isn't it?

And what will the donors (remember them?) think about percentage
compensation?

Denise Rothman (DMR4CATS@aol.com) talked about donors this
way:
What I
can say, however, is that many grantors do not allow their funds to
be
used to pay the grant writer after the fact. In this case the
nonprofit
would have to come up with the money independent of the grant - a
flat
fee established for the work that is completed seems to be the
fairest
approach for all parties involved.

William Krueger (KCI101@aol.com) responded to Denise
Rothman:
Sure, if you're the fund raiser it's "fair". But
under the limitations expressed in these comments, the charity has
too
pay either way. At least with a percentage based system, an
unsuccessful
proposal doesn't cost the charity anything.

From Lisa Ashley, New Client Director of ETS
(
ETSTRN@aol.com) (the
company that wrote the original successful grant on a percentage
basis
that started this whole discussion):
Our funders have no problem
with a
percentage going to ETS. It is built into the project budget. For
instance in the category amount allocated for fundraising. Our
clients
do not pay staff grantwriters, they use our organization.

Ina Frank (inafrank@ix.netcom.com) continued: If a
fund development
professional's compensation is tied to the amount of money they
raise
(or grants they garner) savvy donors will ask the pertinent question
and
be entitled to know that arrangement. And -- virtually without
exception
-- they will *not* want to give more so the pro can make more. Your
organization then suffers doubly: You have lost an increased gift
*and*
the credibility you are trying to establish with that donor. On the
other hand, most savvy donors understand full well the need to pay
appropriately for qualified, competent folks to help raise funds,
just
as they want capable managers for "their" NPO. If they're business
people, of course they understand. If they're doctors -- and realize
what you're doing -- I shudder to think what will happen when they
make
the connection (and I've personally seen them do that) between how
you're paying your pro and how they, themselves, might fare in the
face
of success-based compensation in dealing with human illness. Honest.

To which William Krueger (KCI101@aol.com) responded:
You're absolutely
right ....except, what of the case of the small non-profit that,
following ethics, hires a fund raiser, paying $30,000 a year and
spending another $20,000 in f.r costs, and yet raises only $100,000.
Is
the donor going to be happy knowing that 50% of their gift went to
overhead and not to mission. I don't do percentage based fund
raising,
but I still face the question daily. Most accept the answer ... and
the
rest don't.

So why is there a prohibition against percentage based fund
raising
compensation? While there are many possible answers, a general theme
did
come through that seemed to be accepted ... at least to some
degree.


William Krueger (KCI101@aol.com) summed up: The
central issue, in my
little mind anyway, has been throughout this debate why this ethical
prohibition exists. Every single message supporting the prohibition
of
percentage based proposals focused on the fund raiser ... not the
organization. It was my understanding, and my hope, that there was a
deeper reason for this prohibition other than to protect us as fund
raisers. Would a group of fund raisers form an association and then
actually create an ethical standard that does NOTHING but protect
the
fund raisers own best interests? Sounds like something the lawyers
would
do....I repeat the original question I asked ..."How does percentage
based compensation hurt either a charity, the donor, the community
or
any individual or group - other than the individual fund raiser that
doesn't raise enough money to make a decent living?" Ina Frank makes
a
good point that is, IMHO, closest to the real reason for the
prohibition
when she talks about the commitment and involvement of the board in
the
fund raising process. It would seem the biggest damage done by
percentage compensation is the idea that a charity can "hire"
someone to
raise the money. Don't leaders who agree to serve on a board have a
higher responsibility than to just write checks to fund raisers?
Isn't
that part of their overall commitment. We all know that an involved,
committed board is the key to successful fund raising ... and few
charities can survive on grants alone. Yet, percentage based grant
writing is sooooooo eaaasssyyy, right???? No risk. No effort. No
embarrassment. There is also no involvement ... and, I would argue,
no
commitment to the process (and pain) of growing an organization. The
fact is, you can't just hire someone to raise the money for you.
Those
that try fail .... always. Those that have committed staff and
volunteers raise more money, faster than those that try to "farm it
out". Quite frankly, I have found board members work harder when
they
have some risk (like having to pay the consultant whether they (the
board) raise $$$ or not). Certainly, gets the staff and board more
involved than if there was no risk. This is perhaps less true with a
"grant proposal" than other fund raising, but an important fact none
the
less. This still doesn't mean that I think, like NSFRE, et al, that
there is ABSOLUTELY NO case for percentage based compensation.
Unless it
hurts a charity, donor, etc., there may well be, IMHO, some role for
it
and it certainly is not as inheritantly evil as some would have us
believe. And in the case of a start-up group like the one that
started
this whole discussion, I really don't see any harm to anyone
anywhere
... provided the group is, as a whole, working on developing a
comprehensive and effective fund raising effort. If they are simply
relying on those grants to last forever, I suspect some fund raising
company is going to get a call in a few years or months saying, "We
didn't get the grant we were expecting. Can you raise us the $xx,xxx
we
need to stay in business? Oh yea, we need it by the first of next
month." And that's when another a good charity goes out of business.
And
a group doesn't need to have a lot of money to get started. Buy a
book
on how to write a case statement, bind it up at a local print shop,
put
a personal letter with it, and then have the board and leaders
set-up
appointments with friends, vendors, colleagues and others that have
some
money. Then ask ... I won't do it because it isn't in our clients
(or
admittedly our own) best interests, but I think we should have a
little
compassion for those that find it necessary to use it. I would
strongly
encourage those organizations who choose percentage based
compensation
to NOT view it as the be all and end all. A well balanced approach,
taking into account the realities of the particular situation, will
lead
to more fund raising success than anything else.

POSSIBLE ALTERNATIVE SOLUTIONS

Judith Lindenau, CAE (judith@netonecom.net) wrote: The
most fair way of
paying a good grant writer (or an attorney...or a lot of other
professionals who are necessary to our jobs as organization
managers) is
to put them on retainer for a flat fee, and then pay them based on
their
efforts. That latter might be an hourly reimbursement as in the case
of
attorneys, or a contingency fee of some sort based on performance.
Of
course, some professionals would like it the other way: they get
paid
regardless. But if in fact we as managers are truely fiscally
responsible, then I think we need to be in better control of the
results
of our efforts.

MISCELLANEOUS

Putnam Barber (pbarber@eskimo.com) suggested that there
might be
some discussion of NSFRE's position on the question at its website,
announced in the latest edition of the Chronicle of Philanthropy:
http://www.nsfre.org.




Reformatted, with additions, August 26, 1998 -- PB