Tag Archives: Employment

Why are so many non-profit salaries so low?

Homeless person, with shopping cart

a nonprofit mobile office?

Dan Pallotta’s book Uncharitable continues to move me; it is changing my views of where the nonprofit sector needs to go. In the first portion of the book, Pallotta delves into the origins of strongly held American beliefs about the nonprofit pay. He writes:

“In Puritan times, people gave directly to the needy, without using brokers. This is no longer possible on any meaningful scale. Charity is no longer an exchange between the non-needy and the needy. It is an exchange between the non-needy (donors) and the non-needy (the charity workforce) to provide services to the needy. Is an exchange between equals to help the needy. It is no different than the exchange between those who buy cars and those who make them. A law that was meant to provide an economic discount to the needy in face-to-face transactions is now improperly exploited to expect nonprofit sector workers to provide wage discounts to wealthy donors who are in essence buying a service from them, which they use their labor to provide. The donating public expects the nonprofit workforce to extend to it the law of mercy. But it was never intended that such a law be applied in this way.”

This is a big aha for me—over time two distinct dynamics have become confused as one. The first dynamic is the wealthy giving charity to the needy. The second dynamic is nonprofit employees (the non-needy but non-wealthy) working at below market rates, thus also giving charity to the needy. But in doing so, the nonprofit employees are in a way also giving charity to the *wealthy* as well, in the form of their under-priced labor. And this practice of low nonprofit wages is not just common, it’s widely considered to be the only acceptable situation.

I’ll never forget attending a mixer of the San Francisco chapter of YNPN and overhearing several discussions of nonprofit employees who have no health insurance. They were talking about where to go in the city to find free health clinics! These are smart, young, energetic people who could easily find work in the for-profit arena. They are living lives of poverty in order to work for nonprofits. It just doesn’t seem right to me, it doesn’t seem sustainable, and I absolutely can’t see this being good for the field. It doesn’t take much imagination to see many of these young people going and finding “real jobs” and only doing social benefit work on weekends. What a loss for the field.

So what’s going on here? My guess is that there are two factors in play.

One factor is that there are a few markets for the kinds of social benefit that nonprofits generate. These are organizations that are creating real value to society, but which society isn’t currently willing to pay for, at least not proactively. It’s a lot easier to get money to build prisons than it is to build programs that prevent the need for more prisons. I hope that over time as the underlying math and science of how societies work is better understood, the value of the right types of social investments will become obvious and uncontroversial.

The second factor is that there are huge discrepancies in the nonprofit world when it comes to pay—people at some organizations get paid extremely well, even if the impact isn’t clear. My guess is that this links to the relative lack of market mechanisms in the nonprofit world, where pay and impact can be worlds apart.

I wonder: if we can better understand and measure impact, and if we can create markets for that impact, can we find ways to fairly compensate talented individuals for the positive social impacts that they drive?

Struggling business or highly effective development effort? A social enterprise dilemma.

Developing 0.750–0.799 0.700–0.749 0.650–0.699...

Social venture and global competition

Suppose I told you about an investment opportunity with an outsourcing business based in a developing country. They’re the first of their kind in that country, which is an unknown in this particular industry. Furthermore none of their local employees speak English natively, and so all must study English and do their best in working with English-speaking clients on projects that are usually in English. Oh and by the way, this business’s main competitors are based in English-speaking developing countries with a history in the industry, and much more developed base of management talent. Would you like to invest?

Now let’s say I told you about an opportunity to support an innovative nonprofit
that provides top-notch training to underprivileged people in developing countries, and provides them three times their prior salary—plus benefits—to work in teams working on real projects, for real clients? And furthermore, after three to four years of work experience, employees are able to find even higher paying jobs, paying three times again what they made during training. Oh and by the way, this organization takes every dollar you donate and stretches it to be three dollars of impact, because of the income generated by the real world projects that are the heart of this training program. Would you like to invest?

Social enterprise, at the outset, is a great story to tell: running a real business that provides training and employment opportunities for disadvantaged people. But such businesses face the real-world challenge of competition from regular, for-profit businesses. When it comes to a local business, such as a restaurant, where the “delivery of value” is necessarily local and in-person, such social enterprises have a relatively even playing field on which to compete.

However when it comes to a global business, the playing field can be much more uneven. Whereas a competitor to a local restaurant faces similar costs for rent, personnel, and materials, a competitor to a global outsourcing firm might enjoy better English skills, a more highly educated talent pool, along with the ability to recruit highly skilled senior management locally, instead of from abroad.  Thus it can be very challenging to compete, sustainably, against such advantages.

So does this mean businesses shouldn’t set up shop in said developing country, because of those disadvantages? It depends on the goals and expectations of the business.

If the goal is to make bottom-line profit, then it doesn’t make sense to  “fight the current” on such a critical point such as the talent pool. You’re going to have to spend extra money to make up for the education system and bring people up to speed. Plus, to ensure that your organization can compete in the global space, you’re going to have to pay good money to hire for key strategic positions, whether you are hiring from the limited pool of locals, or you’re bringing in expats.

But if the goal is development, then the very sources of these disadvantages gives the justification for investment in such a social business. Because through such investment, the “disadvantaged” developing country can start on the road towards building a globally competitive talent pool. How else are they going to do it? Furthermore it’s a fair bet that in a country which has had much less investment in the talent pool, there are a lot undiscovered—and highly motivated—people looking for an opportunity. And this spark of enthusiastic hidden talent can be a real advantage for a business.

So yes, such extra costs to running a social venture in a “competitively disadvantaged” country make for a challenging business opportunity. However as a development opportunity, the ability to create a lively new industry that trains locals in relevant global skills can make for a highly impactful, highly relevant social investment.

The key question to me is, will traditional funders of development efforts have the insight and the courage to support a business-looking engine of economic development for the disadvantaged?

And at the end of the day, does the “developed” world actually welcome the competition?

How Understanding Market Power Can Multiply Social Impact

How can we prepare workers in social enterprises to continue to get good wages going forward, when they enter the open job market? To me, skills-based market power is the way to go.

So just what is this market power? It could come from a coordinated group action to limit competition and maintain higher wages. Or it could come from skill, where the workers have an uncommon ability to deliver value to the market.

Let’s consider this case of worker-based market power more carefully. If the worker’s skill is uncommon and valuable, then there’s truly a negotiation to be had with the employer. The employer needs the worker to deliver the product or service, and it isn’t easy to find enough qualified workers, thus workers are able to demand higher salaries, and the employers know that finding replacements will be tough, and so they value the working relationship more highly.

Now look at the case of employer market power. If the worker’s skill is easy to find then the employer will have a lot of people to draw on, and this will drive down the wage. To make matters worse, if the skill is not particularly valuable, the employer will tend to invest even less in the working relationship, and be more likely to engage in short-term employment arrangements. In other words, workers get the short end of the stick.

Consider the case of Friends International, that among other things trains disadvantaged youths to be cooks in restaurants. Being a savvy organization, they are acutely aware of the challenges that their employees face when they look to find their next job after working for Friends. And thus they strongly encourage their cooks to stay with Friends long enough to master both Cambodian cuisine, as well as Western cuisine, because they know that cooks who are competent at both are in much higher demand in the market. Rather than simply flooding the market with more “run of the mill” cooks who will lack market power, they create much greater social impact by training employees to that higher, harder to achieve level of skill.

Thus I propose that smart social enterprises must be aware of the dynamics of market power. They should consider how to orient their training and job opportunities towards professions where hard-working people who invest the time and effort can develop market power, and enjoy the benefits.

From farmers to information workers: DDD Battambang brings IT jobs to the heartland

Rice farming in Cambodia

Potential information workers?

Last November I was in Battambang, Cambodia facilitating public speaking workshops for the local management staff of the local Digital Divide Data (DDD) office. Although DDD has several other offices, the Battambang office is the only one located in the countryside, and as such is very interesting from a development point of view.

Much of staff comes from the countryside, either around Battambang or from neighboring provinces, and thus grew up in a farming family. People from these backgrounds typically have limited employment options. They are faced with either continuing the family business in farming, finding a factory job, or moving away from family in search of employment. But for high achieving people these aren’t great options.

Furthermore my informal conversations revealed that farming just “ain’t what it used to be” in terms of its predictability and profitability as a business. Say what you will about climate change—the farmers are noticing changes that are directly impacting them, making farming a riskier and more complicated venture. Plus I have to wonder how lucrative small-scale, small investment farming can be on a sustainable basis, with farm products being sold more and more as a global market.

As I was travelling between Phnom Penh and Battambang I noticed a few factories along the way in rural areas. And yes, while factories are a way to employ a large number of people, they aren’t going to properly tap into the latent talent that is in the community, looking for an outlet.

And moving to the big city, while it may sound promising, is a decidedly mixed bag for many people. Consider that in a family oriented culture such as Cambodia, it’s particularly tough to leave family behind and move away to a big city where accommodation is expensive and where the traditional family safety net isn’t there. Nonetheless your smartest folks, who would be natural community and family leaders, will be that much more likely to move away from the countryside to the big city in search of employment opportunities. The result is a brain drain.

Now in this day and age of technology and remote working arrangements, in theory it ought to be possible to locate outsourcing centers in rural areas. There should be an opportunity to tap into attractive cost structures and a smart, motivated, untapped workforce.

But there are barriers to overcome. How would one jump-start the talent pool, in order to get such an organization off on the right foot? What special challenges would come up from training a rural workforce? And would international clients be comfortable trusting work to a location that was difficult to visit?

And yet one way or another, DDD Battambang has managed to overcome these hurdles and create a thriving rural BPO office in the countryside of Cambodia. It’s quiet, it’s peaceful, there’s fresh air. It’s a pleasant place to live.

I think this is just the beginning—rural BPO could have a big impact for many other places, and other services as well.

 

From farmers to information workers: DDD Battambang brings IT jobs to the heartland

Last November I was in Battambang, Cambodia facilitating public speaking workshops for the local management staff of the local Digital Divide Data (DDD) office. Although DDD has several other offices, the Battambang office is the only one located in the countryside, and as such is very interesting from a development point of view.

Much of staff comes from the countryside, either around Battambang or from neighboring provinces, and thus grew up in a farming family. People from these backgrounds typically have limited employment options. They are faced with either continuing the family business in farming, finding a factory job, or moving away from family in search of employment. But for high achieving people these aren’t great options.

Furthermore my informal conversations revealed that farming just “ain’t what it used to be” in terms of its predictability and profitability as a business. Say what you will about climate change—the farmers are noticing changes that are directly impacting them, making farming a riskier and more complicated venture. Plus I have to wonder how lucrative small scale, small investment farming can be on a sustainable basis, with farm products being sold more and more as a global market.

As I was travelling between Phnom Penh and Battambang I noticed a few factories along the way in rural areas. And yes, while factories are a way to employ a large number of people, they aren’t going to properly tap into the latent talent that is in the community, looking for an outlet.

And moving to the big city, while it may sound promising, is a decidedly mixed bag for many people. Consider that in a family-oriented culture such as Cambodia, it’s particularly tough to leave family behind and move away to a big city where accommodation is expensive and where the traditional family safety net isn’t there. Nonetheless your smartest folks, who would be natural community and family leaders, will be that much more likely to move away from the countryside to the big city in search of employment opportunities. The result is a brain drain.

Now in this day and age of technology and remote working arrangements, in theory it ought to be possible to locate outsourcing centers in rural areas. There should be an opportunity to tap into attractive cost structures and a smart, motivated, untapped workforce.

But there are barriers to overcome. How would one jump start the talent pool, in order to get such an organization off on the right foot? What special challenges would come up from training a rural workforce? And would international clients be comfortable trusting work to a location that was difficult to visit?

And yet one way or another, DDD Battambang has managed to overcome these hurdles and create a thriving rural BPO office in the countryside of Cambodia. It’s quiet, it’s peaceful, there’s fresh air. It’s a pleasant place to live.

I think this is just the beginning—rural BPO could have a big impact for many other places, and other services as well.