Who Should Fund The People?

There’s a question that’s been bothering me for years.

If solving the world’s hardest problems requires the world’s best people, then why do we pay social impact professionals like they should be grateful just to have a job?

I have watched incredibly talented leaders leave our sector, people who are deeply mission driven, but simply can’t sustain careers built on sacrifice. And then we wonder, why does the sector struggle with retention or with innovation or even with results?

The big bad word here is overhead, and it’s become the single biggest blocker against investing in our people. Funders and watchdog groups have created arbitrary caps on overhead percentages, and then they point to them as if they’re a standard. And although there’s been real pushback on that approach and some genuine progress, the core problem persists. The sector still treats its workforce as a cost to be minimized rather than the most important element to their success.

So what would it look like to have a sector that invested in its people with the same urgency it brings to its missions?

To explore that question, I wanted to talk with someone who’s been inside the machinery of philanthropy and decided to reimagine it. Rusty Stahl is the founder of Fund the People, an organization dedicated to transforming how the social impact sector invests in its workforce. A former Ford Foundation program associate, Rusty has spent over a decade pushing back against the structural barriers that keep nonprofit workers underpaid, overworked, and undervalued.

We dig into the toxic legacy of the “overhead” myth, why the current menu of grant types — from restricted project funding to general operating support — still isn’t enough to support the people doing the work, and Rusty’s bold new proposal: SOS (Staff Operating Support) grants, a funding model designed specifically to invest in nonprofit workers. We also explore why nonprofits fudge their numbers to satisfy funders, what it would take to change the culture of giving, and why the sector’s greatest asset is still its most neglected investment.

Episode Highlights

[00:00] Why we pay social impact professionals like they should be grateful just to have a job

[02:45] The structural barriers holding back the nonprofit workforce

[03:20] The “overhead” myth: how a toxic formula warps the entire sector

[05:44] Why overhead became the default measure of effectiveness — and why it shouldn’t be

[06:46] The case for a well-resourced nonprofit sector in a moment of federal retreat

[08:43] Introducing SOS grants: a new funding model built around people, not programs

[11:59] How SOS grants actually work — a senior center case study

[14:27] The permission problem: why nonprofits need cover to invest in their own teams

[16:09] The MacArthur Foundation president told grantees to take time off. What that reveals.

[18:29] How do we actually get SOS grants into the nonprofit zeitgeist?

[20:29] What nonprofit leaders can do right now to start the conversation with their funders

[21:43] Rusty’s podcast, the Long Haul Grantmaking report, and where to connect

Notable Quotes

“The sector still treats its workforce as a cost to be minimized rather than the most important element to their success.” — Eric Ressler [00:00]

“You’re taking things like your charismatic leader and their work fundraising and mobilizing support for your cause, and you’re lumping that into administrative.” — Rusty Stahl [03:50]

“The nonprofit workforce is the asset, the greatest asset for any organization and its greatest expense, and it’s the bedrock of effectiveness, impact, and sustainability.” — Rusty Stahl [11:00]

“I’m using almost the restricted paradigm for the people. It’s like a Robin Hood kind of play.” — Eric Ressler [15:13]

“We should not have to rely on the president of all the different foundations to get on podcasts and say, ‘I hereby declare you can take summer vacation.’” — Rusty Stahl [17:15]

Resources & Links

• Fund the People
• S.O.S. — Nonprofits Need Funding for “Staff Operating Support” — Rusty’s NPQ article laying out the full SOS framework
• SOS Grants Concept Paper (PDF)
• Introducing Staff Operating Support (S.O.S.) Grants — Fund the People podcast episode
• Long Haul Grantmaking Report — Case study of the Haas Senior Fund’s seven-year Endeavor Fund grants
• Fund the People — A Podcast with Rusty Stahl
   

Eric Ressler: Rusty Stahl, welcome to the show.

Rusty Stahl [01:37]: Hey, thanks a lot, Eric. Good to be here.

Eric Ressler [01:40]: I’m excited for today. I think where I’d like to start is actually to rewind a little bit. As a somewhat outsider to the space, so to speak, I’ve run Cosmic for 15 years now. The first seven of those years, we were focused on largely working with B2B and B2C organizations in Silicon Valley alongside some nonprofit organizations. And then when we kind of decided to put a stake in the ground around social impact as our focus as an agency, I was exposed to a lot of these interesting contradictions that I think unless you work in the space, you’re just not very aware of.

There’s some cultural understanding that I’m hopeful is changing and that you’re part of changing that if you’re going to work in the social impact space, you’re basically going to take a pay cut to do so. I remember distinctly talking to some executive directors that we worked with early on who said they were really highly qualified MBAs that could easily go do four or 500K a year CEO salaries that were scraping by on barely making six figures as an executive at a nonprofit.

[02:45] And I remember just thinking about this contradiction. And so we’re going to talk a lot about, I think, funding and specifically funding people and quote unquote overhead, this word that gets a lot of attention in the space. But I think what I’d like to start with is just getting your sense around what some of the biggest structural barriers are right now in terms of how the space has been set up and how those are becoming especially front and center in this moment where there are direct attacks on the sector at large, especially anything progressive happening from the federal administration.

Rusty Stahl [03:20]: Well, you named one of them, the O word, the very concept of overhead or indirect costs, which I think are both problematic and deeply embedded in the culture, in the systems that have been set up.

So the formula is you slice up the money into three slices of the pie, administration, fundraising, and program. And then you add administration of fundraising together and that equals overhead and everything left is program, easy formula, right? Simple, but toxic and not actually useful for anyone in particular.

So you’re taking things like your charismatic leader and their work fundraising and mobilizing support for your cause, and you’re lumping that into administrative and labeling that administrative, everything else from actual administrative work to that high level leadership. And just if it’s not directly connected to some kind of event or quote unquote program, you’re labeling it either administration or fundraising and then bundling those things into this thing called overhead and then taking that term overhead and saying, “That’s taboo, that’s negative, that’s looked down upon.”

We don’t want to touch it. We don’t want to fund it. We don’t want to hear about it. We don’t want to address it. We only want this other slice of the pie called program.

And that is embedded in the IRS Form 990. They request that information and it’s embedded in the guidelines that auditors get when they audit nonprofits, they have to do that. So what ends up happening is that nonprofit people have to end up fudging things. And so rather than getting real information about what it takes to run the place, funders end up getting a different kind of pie than they would really get if they really were looking at the reality.

And that warps what then funders respond to and what they think it takes to run an organization. And that seeps into organizational culture and recruitment and retention and who comes into the field, who can afford to work in the field, who can’t.

So it has all kinds of ripple effects.

Eric Ressler [05:44]: I think one of the reasons that overhead is kind of the de facto go-to approach to measuring the effectiveness of an organization is because it’s the easiest thing to measure and because measuring impact is really hard and costs money to do well, which is just like a catch-22. So it’s like, well, show us that you’re impactful. It’s like, well, we need funding to do impact evaluation to show you that we’re impactful, right? So there’s so many contradictions in this space.

I think the way that I think about this is it does come down to balance. I think everyone can agree who’s working in good faith, that there are issues in the world that we need to solve, that there are issues in the world that are not solved by capitalism right now. Some issues are, some issues are not. I’m not anti-capitalist. I think there’s a good place for free markets to produce innovation and competition and all of that, but capitalism’s not going to fix everything in and of itself because some things just don’t have a viable profit model that’s going to solve problems.

[06:46] I think we have to be clear-eyed about that. I think also we’re seeing in real time how important local organizations are to government effectiveness when so many government programs are actually implemented at the end of that stream by a local community-based organization, often a nonprofit. And so if we agree that we need to solve important problems, that there are important problems to solve in the world, that some of those problems do not have a profit motive, then by definition, we need a strong, effective, well-resourced nonprofit sector, which means they need to be funded properly to attract the world’s best and brightest minds to solve the hardest problems in the world that no one else is solving.

So I think about it that way. Now, does that mean that there shouldn’t be accountability for these organizations? Of course not. Is the right way to measure their effectiveness by looking at their overhead percentage?

[07:35] At this point, I think we could say also, of course not. That is one data point. It is not the best data point. So let’s fund these organizations. Let’s fund them properly for the scope and scale of the problem that they’re solving. Let’s make sure that everyone doing this work is doing the thing that they’re the best at and there’s not too much redundancy. I do believe that is a real problem, but let’s make sure that we’re attracting the brightest minds and that we’re paying them properly so that they have the incentive to work at a social impact organization and not one of the big five tech companies that are attracting everyone right now.

And when we have hundreds of billions of dollars to invest in an AI bubble, not saying AI is only a bubble, it’s a transformative technology, but it’s also a bubble. It seems like we have enough resources in America and across the globe to do this right. It’s just a cultural thing that needs to change.

[08:18] I want to get into this next topic though that we were talking about before the show, which is a new, I’m calling it a paradigm that you’ve invented, a new fundraising and funding paradigm that you call SOS. Can you tell our listeners a little bit about what you’re cooking up with SOS?

Rusty Stahl [08:43]: Yeah, I’m really excited about this. So thank you for the opportunity to share it.

So I think nonprofits have been under tremendous amounts of pressure through a series of crises that have kind of been compounding over the last 10 or so years. And what I believe is that the kind of grants that folks currently raise or give are not adequate to meet the needs of nonprofits and their employees and their people in the current environment in which nonprofits are operating.

And so these kinds of grants that we’ve just kind of inherited from our predecessors, they’re not in the Constitution, they’re not in the Bible, they’re not in the tax code, they’re just the way things have evolved. So there’s restricted grants that are restricted by project or for a specific program. Then we have kind of on the other side of the continuum, if you will, general operating support.

And so that’s unrestricted. It doesn’t say you have to spend it on these line items or for this program or for this function. You can do whatever you want with it. And then there are other kinds like, we’re going to fund your building a capital campaign expense or we’re going to fund an endowment. I would call that capital another kind of capital campaign.

And then there’s capacity building grants, which tend to be kind of supplemental. You’re already a grantee. We give you project restricted grant or we give you general operating support. Now we’re going to give you a smaller amount to support a particular capacity building effort like strategic planning or implementing a database. So those are kind of some of the general types of grants. And I would say the most common are those project specific project restricted grants. And a lot of people in the field have been arguing we ought to move from project restricted grants to general operating support grants.

[10:59] What I’ve seen is that none of those kind of grants are adequate for supporting the nonprofit workforce. And the nonprofit workforce, again, in my view, is the asset, the greatest asset for any organization and its greatest expense, and it’s the bedrock of effectiveness, impact, and sustainability.

And so if you’re underinvesting in the workforce through these kinds of grants, you’re underinvesting in effectiveness, impact, and sustainability of your organization and its programs. So what I’m proposing is a new kind of grant that I call staff operating support grants or SOS grants. And some folks listening may recognize that phrase SOS, right? Save our ship. It’s a signal that ships would send out if they were in trouble. SOS grants take some of the best parts of the existing kinds of grants and combine them in a new way to incentivize investments in the grantees, staff, and people.

[11:59] So here’s how they would work. An SOS grant would be restricted for investments in the grantee’s people, and that could be staff, it could be volunteers, it could be contractors. So the restriction would say, “We think it’s really important for you to invest in your people.”

Within that zone of restriction, if you will, an SOS grant is flexible, responsive, malleable, and trust-based. So you could change the particular use at any given time as the internal and external context changes.

So for example, let’s say you have a three-year SOS grant to your senior center, and in year one, you’ve got 50 staff, but no HR person. So in year one, you’re going to use year one dollars to hire an HR person. And then that HR person’s going to say, “You know what? We need better benefits. We don’t offer health insurance and we don’t give a match to retirement savings.”

[13:02] So let’s change that. So in year two, you’re going to say, “Let’s use our SOS grant to pay for that match of employees in their retirement savings to incentivize and support retirement savings and yes, let’s get some health insurance for our employees.”

And in year three, you might say, “I don’t know, the federal government is attacking nonprofits and defunding human services, so we’re going to cover those costs with our SOS grant to keep payroll going.” I’m just making that up on the fly, but that’s the point is that over time, as the internal and external context changes, you could shift how you use the dollars.

And I would say another couple key elements of an SOS grant, these are sensitive issues. Funders who want to be trust-based don’t want to be seen as meddling with how much do you pay this person? And nonprofits don’t want to say to their funders, “Hey, we got a lot of burnout and a lot of turnover in our staff. It’s a pretty toxic workplace here. So can you help us make that better?” They don’t want to say that.

So an SOS grant would be a place where you would document what you did and how it created value and how it strengthened your impact without divulging sensitive information that’s counterproductive.

Eric Ressler [15:13]: I love it. I mean, I’m smiling because I just think it’s actually kind of clever and ironic that you’re using almost the restricted paradigm for the people. It’s like almost like a Robin Hood kind of play.

And I think it’s really interesting. And I think what resonates with me is that even with general operating support growing in popularity, from what you’re sharing, and it rings true for me, you’re not seeing that those funds are being used to invest in people all the time. They’re just being used in certain ways, even in good faith to perpetuate some of the structural issues within the sector already.

So you’re saying, “No, no, no, you’re going to fund the people and that’s all you can fund, but within that one kind of meta restriction, we trust you to use that money for your people in the best way, however you see fit.” And I think that’s a really smart way to go about it and to almost, it feels like give these organizations the permission to do that, the cover to do it.

Rusty Stahl [16:09]: Exactly, exactly. It’s the permission.

On my podcast, Fund the People Podcast with Rusty Stahl, one of the most interesting moments of doing the podcast over five years was we had on, and I was privileged to have on John Palfrey, the president of the MacArthur Foundation, and we were talking about what they’re doing in response to the Trump administration. We talked about the overhead and indirect cost myth as well. But I asked him at the end, I was just like, “Well, what do you think nonprofit people should be doing this summer?” This was in June when I interviewed him and he actually said, “Take time off.”

Rusty Stahl [16:44]: And then he said that an executive director of one of their grantees had approached him and said, “I’m thinking about taking off an extended time, but what do you think?” Could we use your grant to do that? And they were very wary and they wanted his permission. And he said, “Of course, that’s why we give you general operating support.”

And so he told that story and he said on the podcast, “So any of you, anyone listening who’s a MacArthur grantee, please this summer, I give you my permission to take time off.”

Okay, we should not have to rely on the president of all the different foundations to get on podcasts and by fiat or whatever you call that, say, “I hereby declare you can take summer vacation.” So I think there’s just an interesting need for some boundaries around this that incentivize it, enable it and give that permission.

Eric Ressler [17:40]: I imagine a lot of our listeners might be in this moment saying, “Well, this is great. I would like that.” And maybe a sabbatical probably, yes. But even beyond that, yes, I believe in funding the people. I want people at my organization, if I’m an ED and myself or if I’m a staff member, I want to invest in our team and our people power.

How do I get an SOS grant? I mean, how does it even work? These are all just made up ideas, right? They’re norms. They’re not legal charters, are they? I mean, I literally don’t know how this works, but how do we get this into the nonprofit zeitgeist, especially to the funders and start to get the word out and change the culture and start to get SOS grants becoming one of the most normal things that nonprofits across the world get?

Rusty Stahl [18:29]: Yeah, that is a gold question for me. I have the same question. How do we do it?

We’re just at the beginning of rolling out the idea of SOS grants, and I think we’ll get pushback from funders, we’ll get pushback from nonprofits. So one thing I want to make sure I say is that SOS grants should be one of the tools in the toolkit for fundraisers and for grant makers.

I do hope that SOS grants become the main grant and then general operating support or project restricted supports become supplemental because that way the SOS grant gives the kind of significant level of investment that nonprofit workers need and want.

So far, I don’t know of anyone offering this in quite this particular way, so I’m hoping to get some folks to try it out and share how it went. And I think nonprofits can just start asking their funders, “Hey, we heard about this idea of SOS grants — staff operating support.

[19:29] That would be really helpful given that there’s no PPP loans coming for this crisis and we need to support our staff to get through this. And here’s the concept paper from Fund the People that shares what an SOS grant is. Would you give this a try?”

And if the funder says, “No, we’re not going to do that,” you’re no worse off than you were. But if a bunch of nonprofits start going to a funder and the funder hears that from three grantees, all you need is three different grantees to go up and say to one program officer at different times, “Have you heard about this SOS grant idea that could be really helpful for us?” They will then take that into consideration and it’ll start a conversation inside the foundation.

So nonprofits need to buckle up and just ask for this, just raise it. Just share the paper that’s going to be available on our website and with your funders and say, “I’d be curious to hear what you think about this.”

Eric Ressler [20:29]: Yeah. So step one is we got to get the word out, which we’re excited to be part of with our massive audience for this show.

Rusty Stahl [20:36]: It’s awesome. Yeah.

Eric Ressler [20:37]: But also I think it does, these little ripple effects add up. And I hope that we get to a point where this is one of the main tools that funders use and maybe even offer as this cultural change happens to, again, using that word permission, give these organizations the permission, they might feel like, “I don’t want to burn my bridge with one of my major funders and ask for an SOS grant.”

So in my opinion, the burden falls on the funders to say, “Hey, we realize through reflection and research and experience that when we fund people, organizations are stronger.” Alongside our general operating support grant we’re giving you for the next three years, we want to also offer you a separate SOS grant to help build additional people power to get all of that work done. That’s the dream state, I think, right? So let’s hope that we get there.

[21:29] Rusty, this has been awesome. Before we wrap up, I do want to give you an opportunity to just kind of plug anything that you’d like, plug the podcast. We’ll link to the concept note once it’s live. Hopefully it will be by the time this episode drops, but anything else that you’d like to share with our listeners, go for it.

Rusty Stahl [21:43]: Thank you. Thank you so much for having me on and to talk about this.

Other things we have, so the podcast you can find on our website or on Apple Podcasts or Spotify or anywhere. So again, it’s called Fund the People — A Podcast with Rusty Stahl. It’s kind of a long name, but if you just search for Fund the People in your podcast player, you should be able to find it. And we have on funders, nonprofits, researchers, even some government people talking about different issues that all connect to investing in the nonprofit workforce. So it’s got some real high quality stuff. And we have addressed things like the overhead myth on there and lots of other topics.

Another thing I’d love your listeners to know about is we have a fairly new report that came out in September called Long Haul Grantmaking. And it’s a case study of the Haas Senior Fund in the Bay Area, California, and their Endeavor Fund, which gave out these seven-year grants.

[22:50] Here’s an interesting thing. In this case, it was general operating support, but they explicitly emphasized, “We encourage you to use these dollars to create or support good jobs in your organizations.” So it was unrestricted, but with that incentive structure in place. So a sort of a form of SOS grants.

Eric Ressler [23:12]: SOS light, maybe.

Rusty Stahl [23:13]: But very effective and already two years into those seven-year grants having some really important impacts on the staff, the wellbeing of the organization and the program. So that report is a really good read and a really great complement to the SOS grants concept.

Eric Ressler [23:31]: Very cool. Well, thank you, Rusty. We’ll link to all of that in the show notes for listeners. I’m interested to dig into that Haas case study and learn a little bit more there. This has been super fun. Thanks for joining me today.

Rusty Stahl [23:42]: Eric, I really appreciate it and psyched to know about your show and be part of it. And I’m going to be a new listener. So thanks so much for what you’re doing. I’m glad you’ve turned your focus of your firm to social impact. That’s really exciting and I commend you for doing it.

Eric Ressler [23:58]: Thank you. Me too. It’s always a blast. Never a dull moment here. But yeah, this has been fun. We’ll have you back on at some point, Rusty. Thank you.

Rusty Stahl [24:04]: I’d love to. All right, thank you. Bye.