Commentary on ECFA Standard 7.7

The definitions of terms used in this commentary follow:

• “Outside fund-raising consultants” are individuals (nonemployees) or firms with whom a charity has contracted to raise funds for the charity.
• “A member's own employees” are individuals with whom a charity has an employer-employee relationship (other than deputational workers; e.g., workers who are deputized to raise organizational support). These individuals have direct or indirect donor relationships.
• The term “fundraiser” applies to both an organization’s own employees (other than deputational workers) and outside fund-raising consultants.

Charitable mission must always be primary over self-gain. The long-term interest of the charity may become secondary to the consultant’s financial interests if a percentage-based compensation arrangement is used.

If a fundraiser receives a percentage of the amount raised, the motivation of the individual or firm may increase with the anticipation of compensation. The funds raised multiplied by a compensating percentage can set the stage for inappropriate pressure on the donor. From a fundraising standpoint, it could be disadvantageous to the fund-raiser to disclose the percentage compensation arrangement.

Every effort must be made to keep the donor’s trust. Donor attitudes can be unalterably damaged in response to undue pressure. The donor’s awareness that a direct commission will be paid to a fundraiser from that donor’s gift can compromise the trust on which charity relies.

The donor’s best interests must always prevail over any incentives for self-dealing. The percentage-paid fundraiser may influence donor choice so as to generate the greatest current result, rather than preserve the donor’s assets for the best long-term benefit to the donor and to the charity.

To appropriately serve the charity and to enable donors to be as generous as possible, it is often appropriate for fundraisers to challenge donors with multiple-year commitments. A self-serving fundraiser compensated on a percentage basis would not normally encourage multiple-year gifts (unless the compensation agreement includes payment even if the fundraiser has moved on to another employer).

Donors should not be pressured into giving. They have a right to know that all appeals for funds are truthful and accurate. Donors also have a right to know if the fundraiser has a significant conflicting motivation. While obtaining gifts may indirectly be of financial advantage to most fundraisers (e.g., it may result in the fundraiser maintaining employment or a fundraising contract), a percentage compensation arrangement could be a significant, conflicting motivation. The fundraiser should be motivated by the purpose of the charity’s ministry and the desire to do a good job, not by the compensation that will come from raising additional funds.

Compensation should be based on merit. Percentage compensation arrangements can provide reward without merit. Contributions that materialize at a given moment are often the culmination of the efforts of many people, including volunteers, over long periods of time.

In Ethics for Fundraisers, Albert Anderson aptly observes: “The set fee concept recognizes the value of professional counsel independently of the fundraising outcome, which, of course, cannot be guaranteed.”

Compensation practices should encourage donor liberality. Savvy donors will inevitably ask pertinent questions about fundraiser compensation arrangements. Upon learning the fundraiser will receive a percentage of the gift, what donor will want to give more so the fundraiser can receive more? In most instances, the charity will lose an increased gift and the credibility of the organization will suffer.

Wise donors fully understand the need to appropriately compensate qualified, competent professionals. They know professionals generally receive commensurate fees and, indirectly, a portion of their gift is going to pay the fees of a fundraiser. The potential negative impact is when the donor learns the fee to the fundraiser will be paid as a percentage based on the amount of the gift.

Pay-for-performance or competency-related plans can be structured in compliance with Standard 7.7. These plans consist of identifying goals for specific positions and embedding them as criteria in the selection, performance, assessment, personal development, and succession planning of these positions.

A compensation system where some portion of an individual’s pay (e.g., at-risk pay, variable pay, or opportunity pay) is based on mutually agreeable goals, generally financial and nonfinancial, tends to encourage employees to focus on performance. The benefits generally appear in the organization’s bottom line through revenue creation or expense reduction. This can provide the funding for the additional compensation.

Summary.  Paying fund-raising consultants on a percentage of gift income can be tempting to an organization with no funds to pay the fundraiser. The percentage payment concept may challenge a fund-raiser to raise as much as possible. And it offers the charity a guarantee that its fundraising costs will not exceed certain predetermined limits.

However, percentage-based payments to fundraisers are not in the best interest of donors, nor are they consistent with the trust that donors place in a charity. While it is acceptable to pay a fundraising vendor for advertising agency commissions at a percentage rate, the use of a percentage basis is not allowed with respect to gifts raised under Standard 7.7.