We have covered a bit of the back and forth between Ken Burger from Charity Navigator and Dan Pallotta regarding executive compensation on this site. I even offered my own two cents on the topic back in April.

In his reply to Dan Pallotta, Ken Burger writes that there is a compensation issue greater than that of what we are paying the people at the top of the ticket. Ken argues the real compensation crisis we face is the low wages front-line social sector staff receive. He writes “...Boards and CEO’s should focus on retaining, promoting and rewarding those who perform and deliver vital direct services to people in need.”

I had a customer a little while back who was the executive director of a mid-sized social service agency. She would often complain that her employees were “idiots”. And she was right, they were (I didn’t think much of her either however).

The executive director’s agency was experiencing intense growth. The board was presumably happy with the multitude of new grants the agency was securing, and its expanding service repertoire.

The agency had hit a point where it needed to increase the quality of its human capital, not the size of its staff. But with each new grant came at least one new hire.

I wondered why the executive director kept hiring new people at relatively low wages. It seemed to me the organization’s money would be better spent hiring fewer people who could command higher salaries and add more value.

However, the grants the agency was securing left the executive director no room to negotiate employee salaries. Each new grant funded a new program, and with it a new position. Therefore, while the agency was awash in grant monies, it had no significant discretionary budget with which to reward higher performance.

The agency could not hire fewer people at higher wages even if it wanted to.

This is a serious issue for the social sector. We need to rethink the way we structure grant requirements. Executive management should have the freedom to use their agencies’ funds to compete for front-line talent. In order to do that, funders need to loosen their grip on guiding exactly how funds are used.

The overburden of funding restrictions renders moot the argument over executive compensation. The intensive regulations and particular stipulations of how grant monies can be used make the difference between Steve Jobs and a puppy with a fedora negligible. If executive management does not have the discretion to do what is in the best interest of its agency with the money it has, then it doesn’t really matter who runs our non-profits.

(Photo by bgolub)