PAY, ESPECIALLY WHEN it is funded by the public, tends to be a lightning rod for public scrutiny and media attention. Usually, it’s the big numbers that gets the buzz – compensation of CEOs of publicly listed companies, ministers’ salaries, etc. Of late, the low level of pay of the average charity worker has come into some focus.

While there is a lack of good data on pay in the charity sector, there is hardly any contention that they are paid less than the commercial and public sector. The question is how much? Based on input from human resource compensation firms, my sense is that charity executives here are paid 30-50 percent lower on average compared to their commercial counterparts.

Is that fair?

That’s where the divergence of views begins. A 2004 U.S. survey by Guidestar, mainly of charity workers, say "no". By contrast, a 2005 poll by The Straits Times on Singaporean attitudes towards charity found that 60 percent feel that charity organizations should be run by volunteers or staff paid below-market wages.

Those who view current pay levels as unfair call for charity sector pay to be levelled up to be in line with market. By market, they mean the commercial market. The implication is that nonprofit pay is not market-based.

I would argue that they already are market-based. The nonprofit market for full-time staff is as capitalistic a market as that of financial services or any other industry. As in the commercial world, employees join and stay in nonprofit organizations voluntarily – it is a classic case of willing buyer and willing seller, with full disclosure. No one is compelled to do nonprofit work. People choose to work in charities at wage levels that they know of upfront and therefore fully accept.

In fact, the human resource market is one single large capitalistic market made of different market sectors, one of which happens to be the nonprofit sector. And within the nonprofit sector, like other sectors, there would be different market segments.

And each market sector and segment comprises of individual organizations who decide how they want to price their executives and the law of supply and demand works to move the players around (over the long run).

The collective pricing for a particular job by all the organizations in a particular sector of the human resources market results in a narrower band of acceptable compensation levels for that job; this merely reflects prevailing common characteristics of that sector. And this leads to its competitiveness of pay relative to other sectors.

So if the job market works according to natural market forces, what accounts for the wage differential between the charity sector and the others?

Most observers, inside and outside the sector, cite the noble spirit of altruism as the reason. Since the sector is about charity, so workers should also be charitable. This is seen as a "discount" given by employees for working in a charity organization. Or you could argue that it is a "premium" the individual gets for the joy of heart work.

Is this heart factor a good reason for the supposed premium of charity work? I think so.

In many sectors and in many organizations, there are intangibles why people would take on the job for a lesser sum than they could command elsewhere. Many technology companies, for example, rally their employees behind the idea of changing the world. Apple tells its employees that "the best way to predict the future is to invent it".

These intangibles often relate to our very human desire for meaning in life. What is unique about charity work is that sense of nobleness, of doing good, of giving back to society as part of one’s job.

There are other sectors where sacrifices of pay are expected for noble reasons.

Many (although not all) religions require their religious to live a modest life as part of their higher calling. A 2006 Sunday Times survey of religious pay showed that the Taoists, Buddhists and Hindus pay their religious workers relatively small sums of money. Catholic priests in Singapore seem to receive the least – $500 per month with lodging.

Even our public service sector which leads the rest of the world in paying well seeks to factor in a one third discount for ministers and top civil servants compensation from the benchmark pay. (Critics however question whether the benchmark pay which is determined using the top eight earners from six professions is appropriate).

For sectors driven by nobleness, the relative disregard for pay levels provides the moral authority intrinsic to the sanctity of the sector and sometimes is very necessary for the incumbents to be effective in doing their work. Revving up their pay to commercial levels would be corrupting that very value of charity.

Yet, I find it difficult to explain the whole difference between current charity and commercial pay as being due to the sacrifice for nobleness.

Most people who have straddled both charity and commercial sector would attest to the significant differences in work environments between the two. The pace in the nonprofit sector is much slower. Outcomes are less clear. People are much nicer to each other.

Hence, I would say that part of what accounts for the differential between charity and commercial pay is this environmental aspect of lower stress, slower pace, and less demanding expectations. You could say it is the head factor, in contrast to the heart factor.

Differential pay for different environmental factors is a common phenomenon across the capitalistic human resource market. Foreign currency dealers are very well paid because of their odd hours, high stress levels and less secure tenures.

A lawyer in a legal firm who is defending clients, working to tight court schedules, bearing the risk of personal liability for his work generally get paid more than if he were employed as a legal counsel in the more stable, less risky legal department of a large corporation.

This occurs even within a company. Those on the revenue-generating side of an organization generally are better compensated than those who are not.

In tandem with the call to level up charity pay is the call to level up the quality of charity work. Over time, the lower pay of the charity sector has resulted in a work culture and effectiveness that lags far behind the corporate world. Why is this so?

Consider a professional of a certain calibre who is worth/earning $12,000 and who is willing to take back 25 percent less (let us say that this is the value of the heart factor for him) for performing exactly the same job in a charity organization. Assuming the charity he is interested in offers only $6,000, two possible scenarios result. The first scenario is that another commercial candidate of a lower calibre earning a lesser pay of $8,000 takes a 25 percent pay cut (same heart factor) to do the job at $6,000. The second scenario is that the first candidate earning $12,000 joins at a 50 percent pay cut, the first 25 percent for heart and the second 25 percent for head i.e. he judges that the charity he is going to is less demanding and therefore merits a further 25 percent pay cut. Both scenarios mean that the quality of work and outcomes would be less than what it would be in a commercial organization.

Certainly the charity sector has many examples of successful professionals who have given up well paying jobs in the commercial world and taken very big pay cuts to follow their heart. However, the number of such people is probably not large and if anything, they may create the illusion that the premium for the heart factor is very significant. When it gets to large numbers of workers, the average value of the heart premium would come down. So to populate the many jobs available, the sector has likely attracted staff which at the margin may not have been paid much more in the commercial world anyway.

It is the law of supply and demand at work again. Without enough properly qualified people who value a high heart premium, the old adage "pay peanuts and you get monkeys" applies. And it does not help in the effectiveness of the charity sector even if these monkeys come with a heart of gold.

 

 

 

So, my take is that the capitalistic job market is alive and well. People are being paid what they are prepared to take for the jobs they do.

In charity, the heart factor is a drawing point and should never be replaced by money. However, the price gap established by charity organizations seems to be too big (for the quality level desired by many) given the large number of charity workers needed. The sector thinks that the price gap is for heart. But over time, in addition to the heart gap, a head gap of lower quality and slower pace has built up.

Having been involved with both secular and Catholic charities, my observation is that we are more extreme in the church. There is a much higher heart premium demanded – rightly so, and our priests and religious have led the way in this respect. Nevertheless, the unwillingness to pay what some would consider a "living wage" means that the quality of staff and outcomes has to take a hit. In fact, there are many church organizations that have not crossed the bridge to even move from relying entirely on volunteers to having paid staff, no matter how poorly paid. It is testimony to the power of our faith and the hearts of those involved that collectively we have achieved as much as we have with such constraints. Yet, I am sure there are many who wonder at how we can scale and sustain our endeavours without due regard to the head factor.

The situation in the outside world is changing. With greater demands for accountability and professionalism in the charity sector, charities are being pushed to pay what it takes to bring on appropriate staff – which is more than what they have been paying. With the arguments being made for rising public service pay scales, not relying purely on nobleness to bridge the pay gap is also becoming more acceptable.

As individual charity organizations raise their pay, it will generally lift charity sector pay. Hopefully the pay rises will only serve to narrow and even eliminate the head factor, and hopefully it will never reduce or remove the heart factor. - By Willie Cheng

 

[This is an abridged version of an article originally published in Salt, May/June 2007.]

 

Willie Cheng is Chairman of the Catholic Social & Community Council.

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