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#1

Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 09:24am   141 Views
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One of our local non-profits would like to incent the director with a bonus tied to effective fundraising. One of the members said this is illegal and one said it was okay. Does anyone have resources you can recommend to help us research this topic? We definitely want to keep it legal! Thank you!


Private13890

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 09:45am  
  

I do not  have a source to confirm but i work non-profits frequently.  i know of no regulation that would preclusde the bonus.  The IRS iscould consdider if total cash is reasonable but that's it.  I see no difference between raising money via donations and vutting expenses.  both are relevant to staying solvent.


Private34235

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 10:12am   Revised: 04/17/2010 03:50am  
  

Here are some articles that are germain to your question:

http://www.massnonprofit.org/expert.php?artid=155&catid=64

http://www.allbusiness.com/specialty-businesses/non-profit-businesses-non/109418-1.html

http://www.articlesnatch.com/topic/non profit fundraising

http://www.drgnyc.com/tips/incentive.html

http://compforce.typepad.com/compensation_force/compensation_in_nonprofits/ ( Link to Ann Bares blog noted below)

If all else fails, engage an attorney to give you an opinion.


Private10905

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 02:40pm   Revised: 04/19/2010 03:37pm  
  

Incentive pay for most non-profit organizations is typically less than for-profit organizations.  Incentive pay is not illegal as long as the total compensation is "reasonable".  In addition, you want to ensure that an incentive pay program does not cause a conflict of interest (ethical standards).

If the compensation package is deemed in excess of reasonable compensation, the IRS may impose intermediate sanctions on both the individual receiving that salary and the organizational managers who approved it.

Note: Thanks to Ann for posting the Fundraising Code of Ethics


Private12281

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 02:46pm  
  

In order for variable pay to be effective it has to be clearly articulated in the compensation strategy. Employees need to know what it is for and how it is determined. I do not see an issue with offering additional pay for jobs that influence cash flow and potentially the survival of the organization. The design of the program says a great deal about what it is trying to accomplish. We live in a meritocracy society and recognition for a job well done is always welcomed. I recently recommended a framework for a variable pay program for a non-profit organization to enable them to pay something above and beyond base pay to their development director. Like private sector, top talent in non-profit is being recruited and a variable pay program could convey the message that an organization values the contribution of that individual. If you provide incentive you want to make sure it is meaningful and gets the attention of the person receiving it.

One source to get a ballpark estimate for the amount of variable pay granted to these positions is the non-profit module of the Economic Research Institute Survey. They provide a breakout of base pay and variable compensation by position.


Private11127

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 03:15pm  
  

The American Association of Fundraising Professionals, as part of its Code of Ethical Principles and Standards, specifically prohibits its members from accepting compensation that is based directly on fundraising contributions. 

Specifically, the code states:

(21) Members shall not accept compensation or enter into a contract that is based on a percentage of contributions...

This does not mean that incentives - or performance-based compensation - is off the table for fundraising and development positions.  As the code states:

(22) Members may accept performance-based compensation, such as bonuses, provided such bonuses are in accord with prevailing practices within the member's own organization and are not based on a percentage of contributions.

I posted on this topic a couple of years ago - here is the link in case anyone finds it to be of help.


Private13890

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 03:55pm  
  

That makes sense.  As a percentage, it would no doubt be effective but is close to profit sharing.  The organization can still structure and use incentives based on performance.


Private10790

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/16/2010 09:21pm  
  

As Ann and Howard pointed out, a percentage paid on fundraising results gets terribly close to both inurement and profit-sharing distributions which could also trigger Intermediate Sanctions (IRC 4958 personal fines levied against everyone who knew about  excess benefit transactions to powerful insiders ).  Nonprofits are supposed to exist to benefit society rather than the employees, and taking an obvious "cut of the take" is a flagrant violation of some of the standards that permit nonprofits to exist as tax-exempt entities.  It's an ethical thing, a moral issue, a matter of corporate governance and tax law and more. 


#2

Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/18/2010 09:00am   Revised: 04/18/2010 11:32am  
  

From what I can see, no one has conclusively answered the question of whether the practice is legal or illegal. One professional group has code which says the practice is unethical, but then in another place gives you an ethical way to circumvent the prohibition. Interesting situation, to be sure.


Private10790

   
Incentive/Bonus for Non-Profit Fundraising?  
Posted: 04/18/2010 11:15am  
  

Didn't think folks here would want a legal opinion from a non-lawyer, which would (in itself) be illegal.  Best seek that from your legal counsel or the governing regulatory agencies.  Far as I can see, the practice breaks a lot of rules, but none of those rules violations carries prison sentences, although the fines are stiff ones.


 
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