A charitable organization should not compensate internal or external fundraisers based on a commission or a percentage of the amount raised.
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Introduction
Compensation for fundraising activities should reflect the skill, effort, and time expended by the individual or firm on behalf of the charitable organization. Many professional associations of fundraisers prohibit their members from accepting payment for fundraising activities based on a percentage of the amount of charitable income raised or expected to be raised. Basing compensation on a percentage of the money raised can encourage fundraisers to put their own interests ahead of those of the organization or the donor and may lead to inappropriate techniques that jeopardize the organization’s values and reputation and the donor’s trust in the organization.
Percentage-based compensation may also lead to payments that could be regarded by legal authorities or perceived by the public as “excessive compensation” compared to the actual work conducted. Percentage-based compensation may also be skewed by unexpected or unsolicited gifts received by the charitable organization through no effort of the fundraiser.
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A similar logic applies to employees. Some charitable organizations choose to provide bonuses to employees for exceptional work in fundraising, administrative, or program activities. If so, the criteria for such bonuses should be clearly based on the quality of the work performed, rather than on a percentage of the funds raised.
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Core Concepts
- Compensation for fundraising activities should be based on general performance and commensurate with time and effort expended.
- Those raising funds on behalf of the organization need to uphold the organization’s values and reputation and the donor’s trust in the organization.
- Policies for raising funds need to cover both internal and external fundraisers.
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Legal and Compliance Issues
- Intermediate Sanctions define penalties for excessive compensation, which can apply to fundraisers in certain cases.
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Legal Background
While there are no specific federal or state laws prohibiting percentage-based compensation, federal law does prohibit charitable organizations from providing excessive compensation or economic benefit to executives and other individuals who have substantial influence over the organization’s affairs, and to family members of such individuals. 1 For a more complete discussion of excess compensation rules, see principle #13.(From The Principles for Good Governance and Ethical Practice: Reference Edition,
Published in 2007)1 IRC § 4941 and § 4946; § 4958(f ). -
Discussion Points
These questions – from the Principles Workbook (PDF) – are intended to prompt discussion about the principle, assess the polices and practices of your organization, and encourage your organization to take steps to identify where improvements should be made.
- Why is it important for our organization to establish a policy regarding compensation of internal and external fundraisers? What resources have we used or should we be using to ensure our guidelines are appropriate?
- What is the potential harm of compensating fundraisers based on commission?
- Do we have an adequate orientation process for our fundraising staff? Does this process ensure that employees are informed and educated about the following?
• Information related to our fundraising policies
• How their work will be evaluated
• How their compensation is determined - Have we compared our fundraising policies and compensation practices to organizations similar to ours? Has this been documented?
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Resources for Principle #32
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Related Principles
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Supplemental Materials
