The Nonprofit FAQ

The Association of Fundraising Professionals Code of Ethics

Elliott Alvorado supplied excerpts from ADP's publications: "Aloha you'all, I did this about a year ago when the same subject was being debated on the group list (percentage fees for fundraisers). As part of my work on a paper on incentive pay in nonprofit organizations, I've had to type in the relevant portions of the AFP position statements. As my contribution to the discussion, here are those statements. Please realize that the following is the *NOT* the complete text, only the most pertinent sections. For a full copy, contact the AFP National Office." (NOTE: The AFP code is now posted online at the AFP website, along with other materials about ethics in fundraising. See http://www.afpnet.org/ethics. At the time that Elliott Alvorado provided the text below, AFP was known as the National Society of Fund Raising Executives or NSFRE and had not yet developed a website! --Ed. 3/29/07) Start of Text National Society of Fund Raising Executives Code of Ethical Principles and Standards of Professional Practice NSFRE members...put charitable mission above personal gain, accepting compensation by salary or set fee only;...adhere to the spirit as well as the letter of all applicable laws and regulations;... page 19 of Manual Standards of Professional Practice: Adopted November 1992 4. Members shall work for a salary for fee, not percentage-based compensation or a commission. 5. Members may accept performance-based compensation such as bonuses provided that such bonuses are in accord with prevailing practices within the members' own organization and are not based on a percentage of philanthropic funds raised. page 20 of Man ual NSFRE Position Paper Prepared by the Ethics Committee March 1992 ...individuals serving a charity for compensation must accept the principle that charitable purpose, not self-gain, is paramount. If this principle is violated and percentage compensation is accepted, * charitable mission can become secondary to self-gain, * donor trust can be unalterably damaged, and * there is incentive for self-dealing to prevail over donors' best interests ....percentage compensation, however administered, can produce reward without merit. Charities rely, in part, on voluntary donations to meet their budgets. Donor trust is of paramount importance. To earn and keep that trust, every aspect of charitable activity must be absolutely ethical. Nowhere is ethical behavior more essential, nor its absence more damaging, than in philanthropic fund-raising. To be ethical, philanthropic fund-raising must be mission-led, institutionally based, volunteer-driven and professionally supported in an environment free of improper motive, unreasonable reward, or personal inurement. The not-for-profit sector differs from profit-making business in at least four ways: 1. Laws and Regulation ...If a charity's income is greater than its expenses, the law requires that the surplus remain with the charity. Surplus cannot be diverted to private benefit. 2. Governance ...The board is the charity's legal authority; board members are charged by law to hold in trust the assets of the charitable corporation. 3. Voluntary Support Charitable organizations rely on donations voluntarily given...The donor's belief that the charity will use the contribution purposefully, effectively and efficiently for the charitable mission is the foundation of the philanthropic exchange. 4. Motivation The motivating factor in commercial behavior is personal gain. Because commerce is profit-centered, employee compensation in the form of commission or other percentage income related to output and productivity. Workers seek and accept commercial employment in return for personal profit. The motivating factor in charitable behavior is social benefit. What may be proper motivation in commerce is inappropriate in the not-for-profit sector. There is an inherent conflict of interest between charities founded without intent of profit or private benefit, and employees whose compensation and primary monetary personal financial gain. NSFRE Position: Not Dated "...private financial benefit cannot inure to the charity, it should not inure to the worker. By law, compensation based on skill, effort and time expended, remunerated by salary or fee, does not constitute personal inurement. Conversely, NSFRE believes that commission or percentage compensation breaches the no-inurement principle and is therefore inherently unethical for six specific reasons: (1)...the mission and long-term interests of the charity may become secondary to the worker's personal interest and self-gain. (2) Donor attitudes can be unalterably damaged in reaction to undue pressure and the awareness that a direct commission will be paid to a fund-raiser from his or her gift. (3) Percentage or commission compensation can foster unethical behavior or inappropriate conduct by individuals whose self-interest is oriented to immediate results,... (4) Fund-raising is an ongoing process of donor identification and cultivation...The role of a professional fund-raiser should include building an increasingly committed, enthusiastic and capable group of volunteers. Tying compensation to commission may discourage this activity. (5) Commission and percentage compensation can provide reward without merit. (6) Donors' interests may not remain paramount. Guidelines to the Standards of Professional Practice First Edition, Approved by the NSFRE Ethics Committee: April 10, 1995. Published July, 1995 Standard No. 4 Members shall work for a salary or fee, not percentage-based compensation or a commission. Guidelines a. Members accept compensation based upon the experience, expertise and time requirements of the position. b. Members, if offered compensation which includes a portion based upon a percentage of the funds raised, provide information in support of Standard No. 4, such as the NSFRE Position Paper on Professional Compensation. c. Members recognize that fund raising is a continuing practice in which current funds received may be the results of efforts of others in previous years and, likewise, current fund-raising activities may result in future funds. d. Members take it upon themselves to understand the bases for compensation practices in the not-for-profit and business sectors and that, within each, there are appropriate differences upon which compensation may be based. e. Members help organizations recognize that costs involved in fund raising include staff compensation and that donors do accept organizational costs for such activities. f. Members who offer their services as proposal writers and agree to accept no fee or a partial fee if the proposal is not funded, do so only if such agreement is stated in writing in advance and the compensation does not include a percentage of the fund s sought or raised. Examples of Ethical Practice... 2. Recognizing the difference between percentage-based compensation and a bonus plan, accepting the later should it be part of an organization's regular practices... Examples of Unethical Practice... 2. Disguising compensation as salary, fee or bonus when it is, in truth, a percentage of funds raised... Standard No. 5 Members may accept performance-based compensation, such as bonuses, provided that such bonuses are in accord with prevailing practices within the members' own organizations and are not based on a percentage of philanthropic funds raised. Guidelines a. Members' freedom to accept performance-based compensation is based on the fact that NSFRE recognizes that such can be an ethical way to reward practitioners for industry that exceeds the scope of effort covered by their established salary or contracted fee. b. Members may accept performance-based compensation under the following conditions: 1) The member's organization has a policy and practice that awards performance-based compensation; and 2) The policy has the approval of the organization's governing body; and 3) The policy and practice include, but are not limited to, the member's area of responsibility, i.e., are a norm within the organization; and 4) The criteria are restricted to mutually-agreed upon, pre-established overall goals; and 5) The criteria for determining the eligibility for and amount of such compensation shall exclude any consideration of a percentage of charitable contributions as defined by and subject to IRS regulations or as reported on IRS Form 990 as 'contributions, gifts, grants and similar amounts received.' This should be interpreted as an absolute prohibition of any reference to or use of a percentage of philanthropic income to determine compensation. End of Text Posted sometime in the early 1990s to the soc.org.nonprofit newsgroup, now (2007) part of Google Groups -- PB