Friday, April 8, 2011

Not-for-Profit Profits


Recently there has been a rash of stories in the newspapers and on radio and TV about the “sudden” recognition that the chief executives (CEOs) and other senior managers of large "not-for profits" (NFP) were being paid an extremely handsome salary, usually plus bonuses.. This uproar played particularly well in Massachusetts, where the Boston Globe regularly runs editorials fulminating about the fact that consultants (hiss, hiss) to the state were getting rich at the public’s expense, by being paid at the “outrageous” rate of $100 per hour. (Full disclosure: I myself am a consultant. If that sets your teeth to gnashing,  feel free to skip the rest of this column.)

But that would be a shame, because the argument is actually quite important, and interesting. It is only secondarily concerned with the high pay per se, but rather is focuses on the question of whether NFP executives and particularly Chief Executives should be paid using more or less the same rationale as for corporate (for-profit) CEOs, which of course leads directly to roughly the same pay and the same type of pay package (including potentially substantial discretionary bonuses).

After all, in comparing the work to be done and the responsibilities of the position, there doesn’t seem to be much difference. As a matter of fact, one could actually argue that the NFP job is more, not less, difficult and exacting because there is usually less flexibility and its boundaries are more open to examination and inspection. People, particularly including all of those affected by its efforts, can see more clearly what is going on, how decisions are made and their potential effects on “me.” And by definition, the rationale for having such a category as Not-for-Profit is to encourage and invest in activities of unusual public value. So, maybe, if anything, their CEOs should be paid more.

But Maybe Not.

The other side of the coin is also quite clear. The original issue began with people entering public service, whether as a clerk in the school or a major political actor. The positive payoff from that was straightforward. People who were willing to devote their efforts to serving society, one way or another, deserved special consideration. This used to include (and sometimes still does) assured employment, the satisfaction of doing something important and recognized, the power to make a difference (not necessarily in one big splash), the esteem of their community, support in times of need, and less likelihood of turmoil in their workplaces.

Actually, there are two “other sides” of this coin. It’s not merely that  NFP workers were more protected and respected, but also that workers in the private workforce took significantly greater risks by doing so. Businesses could and often did fail, those dependent on them suffered, they were also more responsible for a variety of possible damages to the community, and even though their compensation, especially near the top, could be quite high, it could also be quite low – or zero. In both cases, the principle was pretty clear. People on public payrolls got security, private payrolls might get richer. Risks and rewards were reasonably related and clear, and people had a choice. The fact that pay scales in private organizations are largely kept secret is also a source of distortion. How can we be sure the system is fair under those circumstances? We can’t.

The problem is that the relationships between these elements, which were never as sharp as theory hoped, have largely collapsed. We now have a system in which some people are in jobs that are both low risk and high rewards (investment bankers), while most others settle for high risks and low rewards (casual or unorganized workers). The appropriate answer is to begin to revise the employment system and our laws to return to the fairer system. It will take time, but in this, direction counts more than speed.

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