Nonprofits Need New “Business Model”

by Leticia M. Smith, Ph.D., President, Lemars Executive Consultants LLC

Recent revelations about the compensation of the CEO of Goodwill Omaha reveal the hazards that nonprofits risk by adopting a warped version of “the business model.” The Nonprofit Quarterly article by Ruth McCambridge reports the canyon-wide gap between the compensation of the CEO Frank McGree and the sub-minimum wage paid to some 100 workers with disabilities. McGree’s compensation was at of at $933,444 in 2014 that represented salary of $250,000, incentive bonuses and compensation.

I do not believe that working for nonprofits requires a vow of poverty. At the same time, I believe in the moral obligation of a nonprofit that benefits from the subsidy from the larger society through tax exemptions to exercise that privilege in a way that ensures equity of compensation between those who are at the top and the rest of those who work for the organization. We are now just awakening to the need to reconsider the pay and benefits for nonprofit workers toward a living wage. Inequities that are persistent in many businesses are under fire as well, and that sector is experiencing pressure to increase wages due to increasing competition for talent, changing demographics and greater dissatisfaction with disparities in income between top executives and most of their workers. Nonprofits are feeling similar pressures and must respond appropriately.

Legal changes affecting wages and benefits are slow in coming, Organizations like Goodwill that serve persons with disabilities are allowed by law to pay sub-minimum wages. However, there is no reason to continue to use the lowest allowable rate as the standard, but rather find a way to make it possible for every worker to live on the wages they make. Independent research tells us of the many workers in a variety of industries in the business world who have to rely on public welfare benefits to augment their income for survival. Workers in the nonprofit sector should not be in a similar predicament; no worker should be.

It is time for a new and social justice imbued “business model” for the nonprofit sector. Nonprofit boards of directors have to always look to the social responsibilities that are implied in the mission of their organization to inform every financial decision they make. At the same time, donors must be helped to understand that the low overhead rate that used to be the golden standard for evaluating nonprofit performance has perpetuated the notion that workers in the nonprofit sector can be paid a little as the market will bear because they are motivated by the mission and not by monetary compensation. If the nonprofit sector is to benefit from the efficiency of a business model, that model needs to be a more compassionate one than what seems to have gained popularity in the past few years. It will take imagination, skill and persistence from all of us who believe in the significant role of nonprofits in a democratic society to reshape our sector to better meet the challenges of growing inequity.

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Leticia M. Smith, Ph.D. is president of Lemars Executive Consultants LLC. She offers nonprofit organizations management consultation services such as strategic planning, merger and partnership facilitation, process improvement, organizational assessment and grant writing.

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