The Way We Think About Charity is Dead Wrong: Compensation

This post is part of the series The Way We Think About Charity is Dead Wrong.

This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.

After speaking about the role of the nonprofit sector, Pallotta moves on to what he describes as a sort of apartheid between the for-profit and nonprofit worlds: “We have two rulebooks. We have one for the nonprofit sector and one for the rest of the economic world.”

And the first difference between the for profit and nonprofit worlds that he discusses is compensation:

So 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 service. We have a visceral reaction to the idea that anyone would make very much money helping other people. Interesting that we don’t have a visceral reaction to the notion that people would make a lot of money not helping other people. You know, you want to make 50 million dollars selling violent video games to kids, go for it. We’ll put you on the cover of Wired magazine. But you want to make half a million dollars trying to cure kids of malaria, and you’re considered a parasite yourself.

He goes on to give a hypothetical example, which I will merely summarize here. Imagine an MBA who graduates from Stanford with this choice: (1) she can enter the for profit world, (2) she can enter the nonprofit world and work for a major medical charity, or (3) she can enter the nonprofit world and work for a hunger charity. Now assume that she is a good business person and does a cost-benefit analysis . She knows that ten years after taking option (1), she would likely have a salary of $400,000; if she takes option (2), she would likely have a salary around $232,000; and if she takes option (3), she would likely have a salary of about $84,000. That’s quite a big difference!

Now, many people might suppose that there are many things in play when considering a career path: job satisfaction, stress levels at work, ability to get time away from work, the feeling of accomplishing something meaningful, etc. Pallotta, however, zeros in on the cost-benefit issue. How many people, he asks, who have “$400,000 worth of talent” are likely to take such a “sacrifice” and head up a hunger charity? And how many people are likely to do so when they can take the $400,000 salary, give $100,000 to the hunger charity (saving $50,000 on their taxes), be seen as a philanthropist and end up sitting on the board of the charity giving direction to the poor MSW graduate who did choose to head the hunger charity.

(An aside: There are again here issues of what, for Pallotta, is the Puritan Problem. Remember that in his description of where this division between the for profit and nonprofit worlds comes from, the problem starts with the Puritans. The Puritans, again according to Pallotta, faces a cognitive dissonance: they were capitalists who sought profit and they believed that the very self-interest that motivated their profit seeking was evil. So they used their charitable giving as a sort of release valve: they could use their charitable giving to ‘make up’ for their profit seeking. Pallotta is, essentially, suggesting that the current philanthropic climate makes it possible – indeed, advantageous – for the MBA to utilize the same release valve for their profit seeking.)

Now, this is clearly an approach to comparing compensation driven by markets: the Standford MBA has $400,000 talent that the nonprofit world undervalues (though one might wonder why she doesn’t have an $84,000 that the for profit world overvalues); the decision of what job to take is governed by average salary ten years out; the $316,000 difference between the for profit job and the hunger charity is a “sacrifice” that our Stanford graduate would have to make in order to work at the hunger charity; and so on. But such a worldview strikes me as one that is unfortunately governed both by the idea that money is the ultimate evaluator and by a view of appropriate compensation that only the well off could have. Indeed, what does it say about such a view that taking a cut from $400,000 to $87,000 – a move from the 98th percentile (of all households) to the mere 74th percentile – is seen as an unwise “sacrifice”?

But it is no surprise that money is the governing value – as I would say in a different series, the theos – of this critique, given the supplemental role that Pallotta assigns to the nonprofit sector. If, as Pallotta seems to have it, the role of philanthropy is to fill the gap between the world that business and the market create and the world that works for everyone – if philanthropy is nothing more than the “market for love” – then it makes sense that money would be the governing value.

As already noted, however, this makes philanthropy subservient to the very markets that are so very inadequate when it comes to creating a world that works for everyone. If we were, however, to accept philanthropy as proposing an alternative to the sort of market arrangements that lead to – or, at least, appear to accept – a world where our Stanford MBA can live on the equivalent of almost $1,100 per day while others live on $2 per day, then we might look at this compensation question differently. If we accepted love as the ultimate evaluator of values – as the word ‘philanthropy’ suggests – rather than money, we might ask whether the MBA making $400,000 per year in the face of such poverty was, in fact, “doing very well for [herself]“. We might begin to suspect that the only way to do well for oneself is to do good for others. We might, in fact, begin to suspect that the $84,000 is too much to accept for the privilege of working in the nonprofit world.

Such an idea would, of course, be rather revolutionary. But philanthropy should be nothing less. And it certainly should not be adopting the same ideologies that – from my perspective, at least – tend to create so many of the very social ills that the nonprofit sector is trying so desperately to address.

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