Weighing ethical questions when considering percentage-based pay

Q. I have a colleague who is considering a new fund-raising position at a very small nonprofit group, whose current budget is $150,000. The organization is not in a position to pay her a salary, but it is willing to pay her a percentage of what she raises. Very risky and unprofessional, but OK. So, what is a reasonable percentage for her to ask? If she were to raise $1-million within a year, for example, could she ask for 25 percent, or $250,000?

A. We’ve answered questions about percentage-based compensation before, and your comment that accepting the nonprofit organization’s proposal would be “very risky and unprofessional” suggests that you know what we’re going to say: The Association of Fundraising Professionals, in Arlington, Va., considers such an arrangement unethical and prohibits its members from accepting percentage-based compensation.

“The purpose of the nonprofit sector is for public benefit, not private gain,” says Paulette Maehara, the association’s chief executive. By taking a cut of what you raise, “you run the risk of putting personal gain above the mission and the donor,” she says. (The association’s code of ethics and its position paper on percentage-based compensation are on its Web site.)

To be fair to the charity courting your colleague, organizations with tiny budgets often find themselves wrestling with the challenge of how to pay a fund raiser when they have little cash. Often, very small charities’ executive staff and board members would prefer to spend that money on programs and advancing their missions, rather than put it in the pocket of a fund raiser.

“A small nonprofit kind of gets caught in a corner,” says Liane Morrison, executive director of Great Education Colorado, a Denver charity that promotes public education. The organization has four part-time staff members “who work more than they’re being paid for,” she says, and an annual budget of about $140,000.

Ms. Morrison says her board members would prefer to give a fund raiser an incentive to reach a goal, rather than hiring someone on retainer, with no guarantee that urgently needed money will be raised. She has twice been turned down by consultants to whom she offered percentage-based compensation, she says. As a result, Great Education Colorado has had to enlist staff members and volunteers to raise money, a situation that has drained time and effort away from the organization’s mission, Ms. Morrison says.

In fact, incentives such as bonuses and shares of a flat fee or salary are not out of bounds in the Association of Fundraising Professionals’ code of ethics, Ms. Maehara says.

Keeping in mind the limited resources of a small charity, Ms. Maehara suggests that your colleague charge a flat fee – say, $5,000 – for a set list of services. The fund raiser could also ask for an additional 5 percent of that fee, Ms. Maehara says, if she meets agreed-upon goals, such as recruiting a certain number of new donors or raising a set amount of money.