May 24, 2018; The Advocate (New Orleans, LA)
Timothy Young, the CEO of Open Health Care Clinic and the HIV/AIDS Alliance for Region Two, Inc. (known as HAART) made an unusual agreement with the organization’s board stipulating that he would receive a “finder’s fee” for any donations he brought in over $50,000. His request for compensation change reads:
Major donations or gifts usually don’t “just happen” but take years of effort and relationship building to pay off. I have been engaging in major gift recruitment for more than a decade with approximately five potential sources. Those kinds of gifts are based on many years of evidenced competence and consistency of mission…I would like to discuss an initial bonus plan based on the receipt of major gifts of a minimum of $50-$100,000 up to $5–$10 million. If the agency gets nothing, neither do I. If the agency gets a windfall based on relationship building over many years, I would hope to get fair consideration.
Of course, finder’s fees for nonprofit fundraisers are considered unethical, as almost all fundraisers know. The National Council of Nonprofits states, “The Association of Fundraising Professionals (AFP) and the National Council of Nonprofits agree: compensating fundraisers with a commission on contributions is not ethical.” That point of ethics, in fact, has been in place as a standard since the AFP first promulgated it in 1969. Other fundraising professional societies, including the Grant Professionals Association (GPA) and the National Association of Charitable Gift Planners (CGP), have similar ethical restrictions on professional compensation.
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Most fundraisers understand the reasons this is unwise, beginning with the danger of violating the “private inurement” provision (i.e., an individual or other entity receiving greater benefit from a transaction than that received by the nonprofit organization) basic to the moral and legal structure of nonprofits. In addition, IRS regulations prohibit anyone doing business with a nonprofit from receiving “excessive compensation” in comparison to industry and market norms.
As Advocate reporter Andrea Gallo notes, the relationship resulting in the donation is with the organization, not the CEO. (NPQ has covered what happens if the reverse is true; when the CEO leaves, the organization loses out.) Fundraising incentives could encourage CEOs to neglect their other duties in pursuit of more cash. Moreover, fundraising is part of Young’s job, which he is obligated do for the healthy compensation he’s already being paid. (The 2016 Form 990 lists his compensation as $121,694.) Fundraising wizard Simone Joyaux has written about the importance of lasting donor relationships, but advises that nonprofits should celebrate their donors, not the person who brings them in. Finder’s fees are common practice in for-profit organizations, but this is one of many instances in which the difference in sector should and does mean an important difference in practice.
According to the AFP standards, fundraisers are eligible for incentive-based compensation within ethical boundaries as long as two conditions are met. First, the incentives must be based on overall job performance, not limited to fundraising success specifically. Second, the nonprofit organization must have a practice of providing incentive-based compensation to other employees not engaged in fundraising activities.
Kimberly Hood, the agency’s chief operations and compliance officer, alerted the board to Young’s attempt to profit from a recent bequest. “He is not entitled to—and cannot ethically or legally receive—a kickback on a donation,” Hood wrote. “By trying to take the money as a [percent] of net assets, he was attempting to hide the fact that he was taking a portion of the donation—intended for our clients and patients—from the donor’s family.” Hood is concerned that Young’s actions imperil HAART’s nonprofit status, but at the very least, they threaten the very relationship building with donors that Young wrote about in his bid to be awarded a “cut.”
In an email he wrote to the Advocate, Young said that “no incentives were ever paid, and the incentive portion was already under review by the board, which may have prompted the allegations.” Also, following the publication of Gallo’s initial article, the organization’s chief information officer, chief medical officer, chief financial officer and compliance officer all resigned, saying they wanted the attorney’s review to go further but were not confident that the investigation would be thorough enough.—Erin Rubin