Last week, the newspaper Omvärlden released its annual review of executive salaries in the development assistance industry. Once again, the question of compensation levels falls on the agenda, but what exactly is a reasonable compensation for employees in the non-profit sector or who work with development assistance? Charity Rating considers this to be an incorrectly worded question.
Every year, we conduct a review of 200 associations, denominations and foundations that are published in our online tool. The donor guide. One of the information we request from the organizations is that they must report remuneration to the highest official in their annual report as it is a matter of transparency. Charity Rating and the Donor Guide present the information but do not assess whether the level of compensation is reasonable or not.
The absolute biggest reason behind this is that it is not very interesting and is based on a misunderstanding of the non-profit sector's goals and meaning. In Sweden, we have an excessive focus on the costs of non-profit organizations and this obscures what should really be assessed. Costs should always be compared with what the organization actually achieves in relation to its purpose - what benefit they create in society. Low costs - what may be incorrectly categorized and often marketed as an “effective” organization - do not give the donor any insight into the positive effects an organization does in society. Developing and investing in a non-profit business may lead to higher costs, but in the long run it may provide higher social returns. What results and social effects are achieved should be the focus - regardless of cost level.
A simplified thought experiment illustrates the problem of cost focus. Both organizations A and B collect SEK 100 (see table) to distribute vaccines. Organization A spends SEK 15 on administration and fundraising costs, while Organization B spends SEK 40. Organization A is thus - in the traditional sense More efficient than Organization B as a larger proportion of the funds raised are used for the purpose. For the remaining SEK 85, Organization A can distribute 85 vaccines - one vaccine per SEK spent - for one year. So 85 vaccine years.
Organization B, on the other hand, is so good at choosing partners and research projects to support that for their SEK 60 they get two vaccines per spent kroner - ie 120 vaccines - which also last for two years instead of one. This gives a result of 240 vaccine years. More than three times as many vaccine years compared to Organization A, which "only" produces one vaccine per krone spent, which also only lasts for one year. The cost of administration and collection for Organization A is thus significantly lower, but the result - the number of vaccine years - is also lower compared to Organization B. In what way is it really effective?
The Swedish non-profit sector and development aid sector must dare to develop, forget old ideals such as 75/25% rules and start looking at what the organizations' work generates for the benefit of society. Most of the non-profit sector is limited by and aware of the 75/25% problem but does not communicate it to donors. Why? If it is possible to achieve more and more positive societal effects, costs should not be a brake.
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Gerda Larsson, Operations Manager Charity Rating