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The Nonprofit Strategist

Compensating Fundraisers on a Commission Basis is (Still) Not a Good Idea.

We receive questions about incentive-based fundraising on a regular basis, especially with our startup clients who want to be entrepreneurial and really don't have the funds to compensate fundraisers up front. They wonder...why can't we pay based on performance?  

The answer is that you can, but you can't set up contracts that enshrine personal profit as the primary motivation for compliance. In short, DON'T pay commission. A recent NonProfit Quarterly article reminds us again why this is so, but here's a simple, line-by-line explanation:

  1. Nonprofits exist and are legally structured to serve the common good. They are not meant to make a profit.
  2. Individuals working for nonprofits are there to serve the organization's mission and the common good. It follows that they, too, are not meant to make a profit.
  3. Commission-based contracts inherently create a profit motive. Therefore, they can not be used in a nonprofit setting.
  4. Individuals can, however, be paid a salary or fee. From a legal perspective, compensation for providing time, effort and skill is not "personal inurement", i.e., does not involve a profit motivation. 

So what about paying for performance? If you follow the logic, you realize that good people who have the skills to deliver results can be compensated appropriately via a salary or contract. Bonuses for fundraisers are also permissible, as long as ALL employees and contractors are eligible (not just your fundraisers), and bonuses are not commissions in disguise. 

Again: nothing's changed about all of this in years, and for good reason. If you want to encourage high performance, go ahead. Just don't pay a commission! 

FundraisingDavid Reis