Ending Low Pay in the Social Impact Sector

This article is a summary of Episode 29 of our Designing Tomorrow podcast. Each episode is a conversation between Jonathan Hicken, Executive Director of the Seymour Marine Discovery Center, and Cosmic’s Creative Director, Eric Ressler.

Let’s talk about pay in the social impact sector. At a guess, 99% of the executive directors and presidents of social impact organizations want to make pay changes. We believe that the intent exists and sometimes it's just hard to make the change. 

Today, we’re going to take a crack at diagnosing why this happens in the nonprofit sector, the business case for raising wages in the sector, and some solutions — some concrete steps that leaders can take to raise the floor for compensation at their organizations.

The Exploitation of Passion

Let’s start with setting the stage a little bit. In the social impact space, there's this aura, this stereotype, and in some cases this reality, that we are such passionate people. We are all bleeding heart activists and we are willing to do anything for the cause. We are willing to sacrifice our own well-being and our own families' well-being for the sake of the cause. 

Whether unintentionally or intentionally, we do think that there is an exploitation of that passion, trying to eke the most out of people in their good intentions for the maximum impact and just work people into the ground until they can't stand it anymore. This is something we see across the board.

This is honestly something we spend a lot of time thinking about, not necessarily so much for our own organization, but for the sector at large. We spend a lot of our time thinking about how we can build a more sustainable and effective social impact sector at large, and how that also trickles down into building more sustainable and effective social impact organizations individually. 

We've seen it happen over and over and over again. There's been a huge cultural shift around work and how work fits into our lives or doesn't fit into our lives, largely accelerated because of the pandemic and lockdowns and the changing environment around work. But it’s certainly something that started way before then. People have a right to be done. We can't expect people to give up their own safety and security and their own ability to thrive, survive, and grow a family if they want to do that, and invest in their future if they want to do that, and save money and build wealth over time. That is not a choice that we should be asking or forcing people to make. 

A Typical Example

An executive director at a local (Santa Cruz, CA) nonprofit who was highly credentialed, who was an MBA from a very prestigious university, shared with us that they knew that they could easily become a CEO of another organization outside of the social impact sector and make four or five hundred thousand a year. This person was barely scraping past six figures while leading a super effective and impactful and important organization. 

Are we ever going to get to a point where the pay scale in social impact for a nonprofit or for a social enterprise are going to be completely congruent with super high-end tech or finance jobs? Maybe not, but frankly, we've got to get a hell of a lot closer.

The Stigma Around Compensation Discussion

It's too bad that this has existed for so long. We have been in the space for over 15 years. That's the lens that we have. But this is not a last 10-year phenomenon. 

The problem is that compensation has become somewhat of a taboo topic to discuss within organizations. It's almost stigmatized. 

It becomes uncomfortable. These work cultures emerge where it's not okay to talk about that stuff. Unfortunately, that's really damaging to an organization. The cost of not engaging in these discussions and talking about them openly ultimately impacts our missions and real impact.

Attracting Top Talent to Solve Complex Problems

From the perspective of an organizational leader or the organization's point of view, we want to attract the world's brightest minds to these causes. And we don't just want to, we have to, because we are trying to solve intractable problems. 

The problems that nonprofits and social impact organizations exist to solve are the problems that the other sectors have not been able to solve. Government has not solved it. The private sector has not solved it. So there are these leftover, wicked, intractable problems. Why would we want anyone but the most intelligent, smart, and creative people working on these problems? 

You can talk about the morals of it, you can talk about the ethics of it, but even just looking at it pragmatically, that is not going to work.

Private Sector Expectations

You could talk about any tech startup in the same way. And to be fair, you do see this sometimes in the early days of tech startups where people are doing sweat equity or getting paid really low wages in the early days. There is some congruency here, but at the same time, everyone knows that it is expected to pay off one day. 

There’s a client who we've worked with over several years, and they've launched a really successful digital curriculum that’s been very successful, very widely adopted. They're getting a lot of traction. One of their leaders comes from a tech background. They once lamented about how the one product that achieved product market fit had to be a nonprofit.

We could see the gears turning around how much money this person would be making right now if they were at a tech startup with the same amount of success. 

Do these need to be equal? No. But it hurts us to hear those kinds of stories because we know that this person is doing the mental calculation around how long they can do this before needing to go back to working in tech if they want to grow wealth and be able to support themselves and their family. This is especially true with the cost of living increasing across the board everywhere right now. This is a massive, massive problem.

It would be untrue to say the thought doesn't cross our minds from time to time. Maybe if we moved to the private sector we could be making double, triple what we are making now. But we are delighted with where we are at and are still committed to it, but we do play with that thought from time to time and we wish we didn't have to. 

The Critical Impact on Entry-Level Workers

Let’s acknowledge that there are different degrees of how important this problem is. We are lucky and privileged to be in a situation where we're not scraping by. Even though Cosmic is not a nonprofit, we still work in the social impact space and serve social impact clients. So budgets are a consideration in the space, of course. 

But we also have to look at staff and entry-level staff. You hear the cruel joke about the employee at the food bank who needs to use the food bank services because they're so poorly compensated. This is a problem at the bottom level for a lot of people. It's not just about, "Oh, we could be making double at a tech company." Both are a problem, but this could be especially prescient for someone who is already scraping by at the lower end of the pay scale in a nonprofit. 

That's where we need to start.

The Hidden Cost of Low Wages

We’re talking about how to attract the world's best talent to solve these big problems. There's another side of the coin, which is the cost. The cost of low wages, the cost of turnover rates, the cost of losing an employee. There's a variety of estimates out there about how much it costs proportionally to lose an employee, anywhere from 50% of that person's salary to two times their salary. 

In our experience, losing somebody in any organization comes with a major cost. When social impact leaders have high turnover rates in their teams, they are hamstringing themselves. They are preventing their organizations from having the impact that they have promised. They are losing money. They are spending on training, and recruiting, and onboarding, and all these activities that are not delivering impact. So the cost of not paying employees properly is actually much higher than what appears on a cash flow budget.

There are some people who feel they can't raise everybody's wages right now. It's something that we've all felt. Our clients have felt it. We've certainly felt it. We would go as far as to say that if your organization cannot exist with fair wages, there's something wrong with the fundamental premise of your organization. 

We challenge anybody who's feeling like they want tortoise wages but they can't, to look at their products and their services and prioritize quality over quantity and make some tough decisions about who can stay on the bus and who can't. And make sure the ones that are still on the bus are being paid properly. That's a really hard decision to make, but sometimes quality over quantity can produce great results in this space.

Double Burden: Underpaid and Overworked 

Another relevant topic is that not only are people just making below market rate wages, but they're also being asked to do one, two, or three extra people's jobs — on top of the job that they were actually hired for. Or, maybe they were hired with a job description that's just not feasible for any one person to do. This is essentially just adding insult to injury.

This is sometimes a prioritization mistake. This is leaders deciding to do certain activities they think they should rather than it being a necessary component. Unfortunately, we expect people in our sector to be masters of many things. Jacks of all trades and masters of all trades, and that's just an unrealistic thing. It burns people out — especially when they're being paid much less than they should be. Once again, quality over quantity is a really sound team building approach. 

Five Solutions for Raising Compensation

We have a few other solutions we want to offer — things that leaders can consider or implement that might help you start moving towards the pay structure that they want.

1. Quality Over Quantity

We talked about this earlier. Prioritize building a smaller, higher-performing team where everyone is compensated fairly rather than a larger team where people are underpaid.

2. Normalize Compensation Talk

Make it really clear to your team that you want to talk to them about their pay. The more conversation about pay is better — even though that creates hard conversations. 

Maybe the emotional tension is that you wish you could pay more than you are able to. That's always been true, and at some level that might always be true. But there's this emotional, almost identity, around pay that makes it a little bit of a taboo in our culture.

3. Tie Compensation to Outcomes

This is potentially controversial in our space, but we do think that you should tie compensation to outcomes in some cases, and for some roles. The fundraising role is the obvious place to start. There is a lot of disagreement about whether you should provide performance-based bonuses for fundraising. We are firmly on the side that you should, and it's for the exact same reason that we brought up earlier — it's really about attracting the best talent. It's about delivering impact and having the tools at our disposal to deliver the impact that our organization has promised. 

If you can compensate somebody for delivering excellent financial results, you should be willing to pay that person more, and willing to have the conversation with the donor or the foundation who might be forking up that money. 

We are big fans of David C. Baker, an agency consultant, and he is firmly in the camp that you have to be careful with compensation based on performance if it goes too far. So some kind of mixed compensation model is much healthier. There should be a healthy base salary to provide a development employee with a sense of stability and comfort, and also to make sure the incentives are aligned. If there's too much incentive or necessity for performance-based pay, that person might start making some choices that aren't aligned with the mission because they need to survive.

4. Start with Your Superstars

It's unlikely you're going to be able to raise everybody's compensation at the same time. You need to work on it slowly. Start with the most valuable members of the team, the highest performers, the people who are indispensable to the success of the organization. 

Raise the ceiling of your superstars first and use that precedent to bring everybody else along.

5. Appoint an Executive Sponsor

You have got to appoint an executive sponsor or an executive owner of this initiative — or else it's not going to happen. Just like any other project, determine who is going to own this and who is going to take it upon themselves to lift those compensation numbers. Make that a part of somebody's job for a year to three years. 

If it's not you as the CEO or the Executive Director, maybe it's the person who's managing your budget. Maybe it's your CFO or your deputy director. Make it a part of their job. Say, "We need to see movement here and here's what success looks like, and now this is part of your job for the next three years." 

You've got to appoint that executive sponsor. You've got to have that accountability if you really, meaningfully are trying to change the culture of compensation at your organization.

Navigating Grant-Funded Compensation

There's one topic we haven't covered yet that feels really important as it relates to pay — which is pay related to grants. Funders often have influence around your pay. You are building out a budget for the program, and part of that budget — and maybe even most of that budget — is staff time and hours and compensation. 

One approach with grants is to overestimate staffing — either the number of hours that might be spent or build salary increases into the staffing estimates. In short, fill that bucket with more staffing dollars than is initially needed. If you can, get those into the hands of your team, and if you can't, use those funds to be applied to the grant work elsewhere. Nine times out of ten, in our experience, that's a conversation you can have with the funder, "Hey, we'd like to reallocate some of the staff money over to direct services," and funders are usually pretty happy to hear that story.

We Need to Change the Culture

Many issues in the sector come back to larger cultural precedents that have been set around the idea that you just don't make as much money if you work in the social impact space. Small donors often say that they don't want their money going to staff pay. They want it to go to program work — as if those things happen in silos. 

Our honest reaction is to start with ourselves. Start within our own organization. We have the agency to make a change in our own organization. We need to lead by example, have conversations like this, and destigmatize it. 

These days, we are seeing more discussions around pay, around burnout, and around exploitation within the social impact space. And we just need to make sure that it doesn't stop at conversation but actually moves into action.