Overcoming Ethical Blindspots: “Percentage Based Compensation”

In the latest edition (March/April 2012) of Advancing Philanthropy, readers were challenged to identify the ethical dilemma posed in several examples of real situations.  One of the examples was the following.

Lacking the staff to carry out a fundraising campaign that will ensure its ability to continue funding vital services for underprivileged children, a financially strapped nonprofit hires a company to handle the campaign and promises to pay it with a percentage of the money raised.

Ministries that are struggling to get by, may not see the dilemma.  There’s the misguided idea that losing 15% of a donation, for instance, is better than receiving no donations at all.  Tempting as it may be, percentage based compensation is absolutely unethical.  It doesn’t matter if the organization doing it is faith-based or not, the ethics centers around protecting the donor.  Percentage based compensation can create an inappropriate conflict of interest, one that put’s profit-motive ahead of the purpose for which the funds are being raised.  This is why the Association of Fund Raising Professionals (AFP), the Evangelical Council For Financial Accountability (ECFA), the Grant Professional Association (GPA) and the Association that Certifies Fund Raising Executives (CFRE), prohibit raising funds on a percentage basis.

However, more and more ministries today are throwing ethics aside and foolishly opening a door to temptation.  The fundraising consultation industry is being flooded by companies that can organize and run fantastic events and take as much as 50% of the “profit.”  None of the companies that do this are fund raisers, however, but profiteers working in the field of fund raising.  They take advantage of vulnerable organizations and pounce!

For a ministry with a minimal staff and little expertise in running events, the trade-off seems as if it is worth the financial sacrifice.  But they sacrifice far more than money when they engage with percentage-based “fundraisers.”  The focus narrows on financial goals that don’t end up serving the body of Christ after all!  Donor lists, that should be protected at all costs, are now in the hands of companies that can, and often do, sell those lists to for-profit-companies (like auto dealerships and jewelry manufacturers) that are looking for new customers with disposable income.

The Chronicle of Philanthropy has exposed some of these companies and followed a trail of devastating consequences.  When vendors who add to their percentage-based profit by selling vital information to other companies compromise detailed donor information, it doesn’t take long before donors get wise and trace the meddlesome solicitations back to the non-profit, and the company that they hired.  Many non-profits have lost some of their most precious financial partners this way.

Development research has found that high-capacity donors simply walk away when they learn that the organization to which they give engages in percentage-based compensation for vendors.  Major donors understand that development professionals are paid, but one would be hard-pressed to find any donor that knowingly gives a large-dollar gift to a fundraiser that is compensated on what can only be described as commission.  The trouble that it can bring can be devastating to a ministry’s reputation, which has a direct connection to the organization’s ability to keep and attract new donors.

It can impact foundation gifts too.  To help qualify grant applicants, more and more foundations today either ask questions about a non-profit’s past engagement with percentage-based fundraisers or require the organization to sign an agreement not to engage in such practices.

Your ministry does not exist to maximize profits, but make a difference in the Kingdom of God.  Every ministry should have clearly defined policies to protect the integrity of the ministry as well as the donor’s interest.