"An organization may not base compensation of outside stewardship resource consultants or its own staff directly or indirectly on a percentage of charitable contributions raised."

The underlying principle of this standard is the protection of the giver. It may be more convenient, more practical, and more cost efficient for an organization to pay staff or stewardship resource consultants based on a percentage of charitable gifts received. But these and other advantages to the organization do not protect the giver.

It may be legal to compensate staff and stewardship resource consultants on a percentage-of-gifts-raised basis, but the fee-for-service concept is accepted as the standard in the nonprofit community.

Percentage-based payments have the potential to place the self-interest of the person raising the funds above the donor’s. Rather, that person’s compensation or fees should be primarily based on time, materials, expertise, and availability. 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.” 

This standard does not apply to Internet stewardship vendors where reasonable transaction fees are paid based on a percentage of the gift. In these instances, ECFA believes that donor protection concerns are minimal.

The definitions of terms used in this commentary follow:

• Outside stewardship resource consultants” are third-party individuals (non-employees) or firms that raise gifts for the organization.
• “An organization’s own staff” are individuals employed by the organization in an employer-employee relationship (other than deputational workers; e.g., workers who are deputized to raise funds). These individuals have direct or indirect relationships with givers.

Note:  As the underlying principle is to protect the interest of the donor, consultants or a organization’s staff who write grant proposals for an organization generally do not relate to protecting the interest of the donor since most grantors are foundations or corporations. Therefore, the payment of grant writers on a percentage of the grant received by the organization is not prohibited by this standard.

The charitable mission must always be primary above self-gain. The long-term interest of the organization may become secondary to the staff member or consultant’s financial interests if a percentage-based compensation arrangement is used.

If a staff member or consultant is paid a percentage of the amount raised, that person’s (or firm’s) motivation may increase anticipating greater compensation. This can set the stage for inappropriate pressure on the giver.

Every effort must be made to keep the giver’s trust. Undue pressure can unalterably damage giver attitudes. The giver’s awareness that a direct commission will be paid to a fundraiser from his or her gift can compromise the trust on which charity relies.

The giver’s best interests must always prevail over any incentives for self-dealing. Paying a resource-raiser on a percentage of the funds raised may influence giver choice to generate the greatest current result rather than preserve the giver’s assets for the best long-term benefit to the giver.

Givers should not be pressured into giving. They have a right to know that all appeals for funds are truthful and accurate. Givers also have a right to know if the staff member or consultant has a significant conflicting motivation. While obtaining gifts may indirectly be of financial advantage to those raising resources, a percentage compensation arrangement could be a significant conflicting motivation. An individual raising resources should be motivated by the purpose of the organization’s ministry and the desire to do a good job, not by the compensation that will come from raising additional funds.

Organizations should always control the message conveyed to givers.  In situations where an organization uses an outside speaker or musician at a public event and compensates the individual(s) on a basis of child sponsorships committed, for example, it is especially crucial that the organization control the message conveyed to givers. When the message is adequately controlled by the organization, a compensation arrangement similar to the example above is permitted.

Compensation should be based on 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. Percentage compensation arrangements do not acknowledge the efforts of all involved.

Compensation practices should encourage giving liberality. Savvy givers will inevitably ask pertinent questions about resource-raising compensation arrangements. Upon learning that those raising resources will receive a percentage of the gift, what giver will want to give more so the person raising resources can receive more? In most instances, the organization will lose an increased gift and the credibility of the organization will suffer.

Wise givers 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 to raise resources. The potential negative impact is when the giver learns the fees will be paid as a percentage based on the amount of the gift.

Pay-for-performance or competency-related plans. Pay-for-performance or competency-related plans are permitted under this standard. These plans consist of identifying goals and embedding them as criteria in the performance and assessment of the staff member or outside consultant.

A  system where some portion of an individual’s pay (e.g., at-risk pay, variable pay, or opportunity pay) or an outside consultant's fees is based on mutually agreeable goals, generally financial and nonfinancial, tends to encourage focusing on performance. The benefits generally appear in the organization’s bottom line; if expenses are reduced, more revenue is available for other projects. This can provide the funding for the additional compensation.

Summary.  Paying staff or resource consultants on a percentage of gift income can be tempting to an organization with no funds to pay those paying resources. Plus the percentage payment concept may encourage those raising funds to raise as much as possible. And it offers the charity a guarantee that its resource-raising costs will not exceed certain predetermined limits. However, percentage-based payments are not in the best interest of donors, nor are they consistent with the trust that givers place in a charity.

While it is acceptable to pay a stewardship firm for advertising agency commissions at a percentage rate, using a percentage basis is not allowed with respect to gifts raised under this standard.

The payment of fixed amounts to compensate for stewardship endeavors is an appropriate way to balance the organization’s evaluation of risk and affordability with the stewardship professional’s integrity and competence.