In this month’s Social Velocity interview, I’m talking with Linda Baker. Linda is the Director of Organizational Effectiveness at the David and Lucile Packard Foundation.
In this role, she leads the Organizational Effectiveness (OE) team as they invest in grantees to build their core strengths and maximize their impact. Through these investments, the OE team aims to build healthier, better connected organizations and networks ready to bring about greater change in the areas the foundation cares most about. The OE team works in collaboration with the four program grantmaking areas of the foundation, and also engages with the broader field on capacity building and good philanthropic practice.
Linda has also served the foundation as program officer in the Local Grantmaking and Children, Families and Communities programs, and as an analyst and associate editor in the Center for the Future of Children.
If you want to read interviews with other social changemakers in the Social Velocity interview series go here.
Nell: You recently took over leadership of the Packard Foundation’s Organizational Effectiveness program. What are your plans for the future of this program? Where do you see opportunities for change or growth in the work Packard does to build stronger nonprofits?
Linda: It is an incredible honor to lead the Organizational Effectiveness (OE) team. I’m proud to be a part of a foundation that actively embraces a commitment to effectiveness by helping our nonprofits partners strengthen their fundamentals so they can better achieve their missions.
The best capacity-building grantmaking happens in open and authentic conversation with nonprofits. At the Packard Foundation, this means that changes in OE funding are driven through continuous listening to our nonprofit colleagues about where they are strong and where they would like to grow – as leaders, organizations, and networks. While many of the funding requests remain similar to the past (like support for strategic planning and fund development planning), a few topics have recently become more prevalent. For example, as nonprofits and leaders focus on movement building and their ability to be flexible and strategic in an ever-changing environment, we are hearing more requests for funding on leadership development and diversity, equity and inclusion. We have also seen an increase in interest in projects that focus on nonprofits better understanding their financial situation and increasing their financial resilience.
I’m also excited about our participation in the Fund for Shared Insight, a funder collaborative that supports nonprofits in seeking systematic and benchmarkable feedback from the people they seek to help. This collaborative believes that foundations will be more effective and make an even bigger difference in the world if we are more open—if we share what we are learning and are open to what others want to share with us, including our nonprofit partners and the people we seek to help. It is early days, but the possibilities are promising.
Nell: The Packard Foundation is way ahead of the pack in terms of actively investing in stronger nonprofit organizations. What do you think holds other foundations back from providing capacity building support (like planning, leadership development, evaluation, etc.)? And what can be done to get more foundations funding in these areas?
Linda: This work is incredibly important. People are the engine of change, and they need appropriate training, tools and support to get their work done. The good news is that momentum seems to be building. Last year we talked with twenty foundations who reached out to us on this work—and we are always happy to provide insight to our peers in this way. I’m also encouraged by the standing-room-only crowds at Grantmakers for Effective Organizations (GEO) conferences, which often focus directly on the importance of capacity building.
An increasing number of our peers have embraced this approach to grantmaking. Both the Hewlett Foundation and the Meyer Foundation have OE programs similar to ours. The Ford Foundation’s BUILD program works to support institutional strengthening in a big way. Many others support the capacity of leaders – we particularly admire the work of the Haas Jr. Fund in this area.
JPMorgan Chase and the Aspen Institute recently issued a report discussing roles and opportunities for business in nonprofit capacity building. And the 2016 GEO publication on capacity building is full of examples of foundations providing capacity building support to nonprofit partners.
For any foundations on the fence, we will soon be releasing our 2016 Grantee Perception Report data that shows that our grantees who receive OE support rate the foundation as more responsive and a better partner. Data from our evaluation last year shows that one to two years after their OE support ended, nearly 80% of grantees reported significant increases in capacity and 90% reported continued investments in capacity building a year after grant completion. We are confident that these investments build lasting change.
Another bright spot is the feedback work of the Fund for Shared Insight that I mentioned earlier, which is investing in stronger nonprofit organizations through experimenting with investments in feedback loops. Shared Insight provides grants to nonprofit organizations to encourage and incorporate feedback from the people we seek to help; understand the connection between feedback and better results; foster more openness between and among foundations and grantees; and share what we learn.
Nell: You have been actively involved in the Real Costs effort to get funders and nonprofits to understand and articulate the full costs (program, operating, working capital, fixed assets, reserves, debt) of the work nonprofits do. How do you see that movement progressing? Are minds changing? Are we, or when will we, reach a critical mass of nonprofits and funders embracing full costs?
Linda: As you and your readers know, this question is fundamentally about the relationship between funders and nonprofits. Nonprofits that have trusting relationships with their funders and an understanding of what it takes to run their organization can talk with funders about what it truly costs to deliver outcomes over the long term. In response, funders with a nuanced understanding of a nonprofit’s financial requirements will be able to structure grants more effectively to achieve those outcomes.
The move for funders to understand the financial resources nonprofits require for impact is gaining steam. I’ve been encouraged by the level of interest and conversation in California alone, and I know conversations are happening nationally too. The Real Cost Project in California is gearing up for the next phase, and we are pleased to be supporting that work and to be thinking about these ideas at the Packard Foundation. I am hopeful that California funders will continue to embrace the conversation and consider how funders can strip away unnecessary processes and promote transparent dialogue about how to best support the work of nonprofits.
One part of the challenge is that we are going up against misguided notions that good nonprofits should not invest in their infrastructure or their people. These ideas are embedded in our culture, and it takes time to change perspectives. If we can get a critical mass of foundations to join the conversation and consider what they can do to improve, and ensure that nonprofits have the tools to understand the financial requirements needed to get to outcomes, that will be progress.
Nell: You and your team at Packard OE have created a great Organizational Effectiveness Knowledge Center website with a deep set of resources for building stronger nonprofit organizations. Foundations are sometimes hesitant to offer resources (beyond money) to nonprofits, but you have made a conscious choice to move in this direction. Why and what could other foundations learn from your experiences here?
Linda: Thank you! We created the Knowledge Center to share our perspective and resources about improving organizational and network effectiveness with the goal of helping nonprofits, our consulting partners, and other funders make their work even stronger. The Knowledge Center is a place for us to share our perspective on a number of topics from network development to leadership and coaching to evaluation, and discuss the latest in the field from conferences and publications.
In addition to providing grantmaking support, we believe that sharing this information will increase our impact on the nonprofit sector and advance the capacity building field. Change does not happen in silos, and we don’t want our nonprofit partners to spend time reinventing the wheel. So, we decided to create a space to exchange what we’re learning and the resources available to help support organizations in this work.
We hope that the Knowledge Center will be a place to exchange learning and reflections, and we encourage users to engage with us by commenting on your experience with these topics or submitting resources that you would like us to consider sharing. And, while you’re there, leave us a comment to let us know what you think of the Knowledge Center and how we can improve.
Photo Credit: David and Lucile Packard Foundation
I was in a meeting with a group of nonprofit leaders the other day, and one of them voiced an often-heard complaint: “There just aren’t many foundations funding nonprofit capacity building.”
I was instantly reminded of my mother’s admonishment when I would come home from school with complaints about a classroom rule or a frustrating teacher. She would say, “Well, you have a mouth on you, don’t you?” Her quip was intended to encourage me to stop complaining about an inadequacy (however small, in my case) and do something to change it.
While I am the first to bemoan the lack of adequate resources in the nonprofit sector, nonprofit leaders themselves do have some agency to turn the tide and find funding to create more effective and sustainable organizations.
Rather than searching for donors who already express an interest in funding nonprofit capacity (like fundraising staff and systems, program evaluation, technology), it is actually more effective if a nonprofit leader takes it upon herself to create her own capacity funders.
But that requires a process, like this:
Move From Scarcity to Abundance Thinking
You can’t hope to solve your capacity challenges without thinking that they are, in fact, solvable. Many nonprofit leaders are so used to going without that they don’t allow themselves and their staffs to envision what could make things better. So start by brainstorming with your staff the hurdles standing in your way (lack of fundraising staff, inadequate technology, poor long-term planning, disengaged board of directors). Then list the kinds of investments you could make to solve those challenges (new staff positions, new technology and systems, strategic planning, board training) without constraining those potential solutions due to their costs.
Create a Capacity Building Plan
Once you have articulated what is standing in your way and the potential solutions to those hurdles, create a plan for overcoming your nonprofit’s challenges. Because funders often see capacity funding as more “risky” than traditional programming support, a nonprofit leader interested in securing capacity building funds must put together a clear plan for the need, solutions, costs and execution plan for capacity support. Clearly articulate what capacity changes you need to make, why, what those changes will help you accomplish, and over what timeframe.
Create a Capacity Building Budget
Attached to your capacity building plan must be the dollars necessary to implement the plan. What would it cost for a new donor database, a program evaluation, or your other needed capacity investments? Do the research and then create the capital requirements, over an adequate timeframe (2-3 years), for the capacity building needs you have. Now you know how much capacity capital you need to raise.
Brainstorm Capacity Donors
Just as you would with a traditional capital campaign, create a list of potential donors to whom you will pitch this “capacity capital campaign.” This is where the real magic happens — when you turn traditional donors into capacity building donors, perhaps without them even knowing it. A good capacity building donor is someone (a major individual donor, board member, or foundation funder) who is already a donor to your nonprofit and can be convinced (through your excellent persuasion skills) that an investment in your capacity building plan (above) will actually help your organization do even more of the things they love.
Work the Prospect List
Just as you would in a major donor campaign, begin meeting one-on-one with these prospective capacity building donors to share your capacity building plan and articulate how critically important these capacity building investments are to the future of your work together. Make a clear, compelling argument about how greater organizational capacity will help you further the mission that these donors love. Connect greater effectiveness and sustainability directly to more programming, more people served, more outcomes achieved.
Demonstrate the Return on Their Investment
Once you’ve secured them, provide those donors who become capacity builders a regular update on the progress of your capacity building efforts. And I have seen tremendous results that nonprofits can report on these types of capacity investments. One of my clients was able to translate $65,000 worth of capacity building investments in strategic planning, board development, fundraising training and leader coaching into 300% growth in the number of people they reached with their services. Another client turned $350,000 worth of capacity building investments in a new donor database, fundraising staff and training, and donor research into a $1.4 million annual increase in fundraising. If you make enough and the right kind of capacity investments, you can see gains in programming, efficiency, and fundraising effectiveness, so share those wins with those who invested in them. And believe me, your capacity donors will be hungry for more.
Instead of continuing to complain about a lack of capacity funding in the nonprofit sector, let’s fix it. A big part of the solution lies in nonprofit leaders planning for and initiating capacity building conversations with their current donors. And in so doing, nonprofit leaders themselves can change philanthropy for the better.
To learn more about turning your donors into capacity funders, download the Launch a Capacity Capital Campaign Step-by-Step Guide.
Photo Credit: taxcredits.net
One of the biggest complaints about nonprofit strategic plans is that once created, they just sit on a shelf. A strategic plan is completely wasted effort if you neglect the final step of operationalizing it.
And by that I mean creating an annual tactical plan and monitoring process that directly tie to the larger strategy. In fact, lack of the operational part of your strategic plan is one of the 3 biggest problems with nonprofit strategic planning.
It does absolutely no good to have big goals that you want to accomplish and a larger future direction for your nonprofit’s work if you don’t have a way to connect that to your day-to-day operations.
So here are the 6 steps to do just that:
1. Create the Strategy
Start with the broad goals and objectives of your strategic plan. Typically, I recommend a nonprofit have 3-6 broad goals over a future (say 3 years or so) period. These should always tie to your longer term Theory of Change, and each goal should be broken down into the 5-10 objectives necessary to get there. And it goes without saying, but you have to create this strategy through a defined strategic planning process.
2. Create Annual Milestones
Once the board has approved those broad goals and objectives, staff needs to create a milestone table that articulates a lead person responsible (“Lead”) and a deliverable for each objective at the end of each year of the strategic plan (“Milestone”), like this:
3. Create a Year One Operational Plan
Once you have that milestone table, you can pull out the milestones for the first year and develop your Year 1 operational plan (below), which lists monthly or quarterly checkpoints for each objective’s milestone for that year. This will helps you monitor (step #4 below) whether the plan is coming to fruition.
4. Monitor Monthly at Staff Level
This operational plan should be reviewed on at least a monthly basis, where the staff comes together to analyze their checkpoints and report on what’s working, what’s not, and where they need to make adjustments.
5. Monitor Regularly at Board Level
Whether your board meets monthly, quarterly or (yikes!) less, you need to report to them on the progress of your strategic plan at every meeting. Since the board is ultimately responsible for the strategic direction of the organization, they need to understand how it is going. Using the operational plan above, you can easily highlight where: things are moving smoothly (green), things need discussion or action (yellow), and serious problems or hurdles (red) lie.
6. Adjust Accordingly
On at least an annual basis, the full board should review the organization’s Theory of Change and goals and objectives of the strategic plan to determine if any revisions (due to changes in internal and/or external circumstances) need to be made.
I believe that a huge reason for the distaste nonprofit leaders have for strategic planning comes from the poor operationalization of those plans. You simply cannot hope to execute on a strategic plan without tactics to get there.
You can learn more about what a strategic planning process looks like here.
Photo Credit: Kevin Utting
Change is certainly happening within the nonprofit sector and the philanthropy that funds it. From efforts to make philanthropy better at addressing inequity, to movement away from the overhead myth (and other myths), we are witnessing important shifts in how we tackle (and fund that tackling of) social challenges.
But I’m hungry for more.
And more could emerge from honest and transparent conversations about what is holding the social change sector back. There are some key hurdles facing the sector, and we have no hope of finding solutions to those challenges unless we start some no holds barred conversations, like:
- What keeps nonprofits from creating more sustainable business models?
Everyone understands that nonprofits are sorely under-resourced and struggle to find sustainable financing for their work. But few are trying to really understand how we change this reality sector-wide. A few funders have commissioned research on the state of money in the sector, but it’s not nearly enough. I would love to see a real, solutions-oriented conversation about a problem that everyone (nonprofit leaders, boards, funders) knows exists.
- Why do we hold nonprofits to a different standard than for-profits?
Because the nonprofit sector was borne out of the charitable impulse, we continue to see it as more holy than and separate from the for-profit sector. Therefore we are uncomfortable with nonprofits being too political, raising too much money, or spending too much on infrastructure. As a stark example, the nonprofits working for reform to our fairly dysfunctional political system have many fewer resources for and many more restrictions on their efforts than the for-profit lobbyists that the nonprofit reformers are fighting.
- Why won’t we treat nonprofits as equal partners in the economy?
Related to this, because the nonprofit sector emerged as a side-note to the business-driven economy, nonprofits have always been viewed as secondary to, and thus less valuable and important than, the private sector. But you simply cannot have one without the other. The nonprofit sector often provides the research and development, worker support, quality of life and other services that fuel the success and profits of the private sector. Without the nonprofit sector there would be less profit and a weaker economy. So we have to recognize the critical (and equal) role that nonprofits play in creating a strong economy. And we have to begin investing equally in the success of those nonprofits.
- Why are nonprofit boards largely ineffective?
Another truism of the nonprofit sector is that boards just don’t work. I have yet to meet a nonprofit leader who doesn’t have at least some frustration with her board and many are resigned to their board’s deep dysfunction. It is extremely difficult to corral a group of volunteers, to be sure, but instead of accepting that challenge as a rule, let’s figure out how to fix it. Perhaps greater standards and regulations, perhaps compensation for their efforts — I don’t know what the right answer is, but let’s analyze the root causes of this inefficiency and change it.
- How do we direct more money to efforts that result in social change?
There is much debate about whether donors want to give based on the results a nonprofit creates. But if the government is going to continue to off-load social interventions to the nonprofit sector, we don’t have the luxury of letting the funders of those nonprofits give solely based on emotion, reciprocity, or duty. You may not believe in “effective altruism” (the idea that philanthropy should flow to the most effective social interventions), but the fact remains that with mounting social problems and a resource-constrained and gridlocked government, a growing burden for addressing social challenges is falling to the nonprofit sector. Nonprofits will only be able to rise to this challenge if the solutions that work have enough resources to actually work. So let’s recognize the tension among increasing social problems, less government involvement, and lack of money and figure out how to fix it.
It’s time for bigger conversations. We have to openly face the challenges standing in the way of social change and figure out a way forward together.
Photo Credit: Paul Thompson
A lot of the conversation in September centered around inequality, philanthropy and data. When do data and philanthropy address inequality and when do they actually reinforce it? And if you add to that discussion about whether donors really care about impact; concern about the distracting, addicting influence of social media; and a call for philanthropists to be more supportive of nonprofit organizations, September was a very interesting month in the world of social change.
- Equity has certainly become the new buzzword in philanthropy. But some are skeptical that philanthropy, as it currently operates, can actually impact it. Writing in The Guardian, Courtney Martin argues that in order to truly achieve equity, philanthropy must fundamentally change: “If we really want to reinvent philanthropy then we are going to have to look at the underlying historic and structural causes of poverty and work to dismantle them and put new systems in their place. It’s also about culture – intentionally creating boundary-bashing friendships, learning to ask better, more generous questions, taking up less space. It’s about what we are willing to acknowledge about the origins of our own wealth and privilege. It’s about reclaiming values that privilege often robs us of: first and foremost, humility. But also trust in the ingenuity and goodness of other people, particularly those without financial wealth.”
- Marjorie Kelly argues that the key to addressing wealth inequality is to return to the old model of worker ownership.
- And speaking of wealth inequality, The New York Times slices and dices U.S. income data over the last couple of decades to understand how inequality varies by state over time.
- According to Cathy O’Neil’s new book, Weapons of Math Destruction, the increased availability of data may actually be worsening wealth inequality. Journalist Aimee Rawlins reviews O’Neil’s book, which paints a very unsettling picture of how data is being used to lengthen prison sentences for people with a family history of crime, raise interest rates on a loan because of the borrower’s zip code, and otherwise reinforce our broken system. But perhaps data can also help address wealth inequality. The Salvation Army and Indiana University’s Lilly Family School of Philanthropy have released a new tool for mapping poverty in the U.S. The Human Needs Index (HNI) uses Salvation Army service data from communities across the country to track human need across seven areas. The idea is that with an improved ability to map need, philanthropy can more effectively address that need.
- One of the biggest uses of data in philanthropy is to prove the impact an intervention has, but Matthew Gerken argues that donors aren’t actually interested in impact. New research from Penelope Burk’s Cygnus Applied Research might disagree.
- Andrew Sullivan, the formerly prolific blogger, has had an epiphany about our addiction to social media and writes an amazing long-form piece about our “distraction sickness.” If you worry that our always on culture is leaving something to be desired, read this.
- Last month many were bemoaning philanthropy’s slow and weak response to the devastating summer flooding in Lousiana. Well, it looks like crowdfunding has come to the rescue.
- Long-time funder Elspeth Revere, retired from the MacArthur Foundation, writes a scathing critique of philanthropy’s unwillingness to fund nonprofits effectively and sustainably. As she puts it, “The challenges facing America and, indeed, the world require philanthropy to be as effective as possible. Nonprofit organizations are philanthropy’s partners in addressing these challenges. They have unusual flexibility to take risks and pursue solutions to our most pressing problems. As grant makers, we need to focus our attention and philanthropic resources on building strong leadership and solid, sustainable, and diverse institutions that address the problems and opportunities we care most about.” Amen!
- Jyoti Sharma, president of the Indian water and sanitation nonprofit FORCE, worries that a current focus on social entrepreneurship as the solution to world ills leaves much behind. As she argues, “Do we need to see social entrepreneurship as a “non”-nonprofit? Should we instead promote hybrid models that plan the social change effort with both charity and revenue streams? Should we encourage community entrepreneur networks where charity funds are used to support entrepreneurial efforts from within a beneficiary community that help solve their social problem? Should we advocate for governments and corporates to join hands with nonprofits in planning, delivering, and monitoring welfare services? Equally, should we set ethical and social responsibility standards for entrepreneurships and applaud them for their contribution to society?”
- And finally, the Nonprofit Tech for Good blog pulls back the curtain on social media with their “12 Not-So-Great Realities About Nonprofits and Social Media.”
Photo Credit: Ixtlilto
It never ceases to amaze me how often nonprofit leaders give away their expertise and their time – for free.
Here’s just the most recent example I’ve encountered.
A leader of an education nonprofit, let’s call her “Amy,” was approached by a group of funders who wanted to start a similar program in a different city. They had already identified a potential leader of the effort, but this leader, let’s call him “Mark,” was pretty inexperienced in working with school districts and in managing a large scale nonprofit effort.
So the group of funders asked if Amy would be willing to help Mark. This would involve Amy sitting in on some community meetings and providing one-on-one coaching on a regular basis to Mark.
Because Amy’s nonprofit also received funding from some of these funders, she felt obligated to comply. And let me be clear, Amy was offered absolutely no compensation for her time, effort and expertise.
There are several things wrong with this situation.
First, although this group of funders found tremendous value in Amy’s expertise, they did not assign any financial value to that expertise. They sought her out, and indeed already determined that their effort would be hampered without Amy’s guidance. However, they also assumed (perhaps subconsciously) that this nonprofit leader was so passionate about the education space, that she would be more than willing to donate her time.
Second, Amy herself did not assign a financial value to her time. She was complicit in the funders’ assumption that, while her time has huge social change value, it has no financial value. But the two must correlate. Amy’s time is a limited resource. And thus she must calculate the financial value of that resource.
But, third, nonprofit leaders don’t necessarily have the tools to calculate the value of their time.
In the hopes that other nonprofit leaders don’t get caught in Amy’s predicament, here’s a quick three-step process for calculating the financial value of your time as a social change expert, based on the financial value your organization assigns to your time.
- Determine Your Annual Cost: Take your annual salary and add the monetary value of your annual benefits (healthcare contribution, social security contribution, etc.). Typically benefits are calculated at an additional 25% of your salary. So, if your annual salary is $85,000 you would multiply that by 1.25 to get the total of your salary plus your annual benefits: $85,000 x 1.25 = $106,250.
- Determine Your Hourly Cost: Then, divide that salary + benefits number by the average number of working hours in a full-time position (so 52 weeks a year at 40 hours per week is 2,080 hours per year). I know you probably work more than 2,080 hours in a year, but this is just a general full-time number of hours. So, in this example, your hourly rate would be $106,250 / 2,080 = $51.08. Or $51 per hour, just to make it easy.
- Determine Your Hourly Value: If you are feeling bold, you can add a profit margin to this number, just as anyone who is paid to offer their expertise (lawyer, consultant, doctor) does. The idea here is that if someone pays you $51 for an hour of your expertise, you are only breaking even. But if you actually want to make a bit of profit that you can plow back into your organization, you could add in a little margin. So perhaps you round up to $65 per hour.
Now, you have a number you can use.
If Amy had been armed with such a calculation, when the group of funders came to her, she could have estimated the number of hours required (including community meetings, coaching, etc.) and then presented it to the funders. Perhaps the hours totaled 50 over the course of a 12-month period. This would have a financial value then of 50 x $65 per hour = $3,250, which I would argue is still a very conservative valuation.
So that group of funders would need to make a payment to Amy’s nonprofit (above their normal contributions) of $3,250 in order for her to agree to their request.
(And now that you have a way to calculate the hourly value of your time, you can also use it to determine the value of your time spent on other things — for example, fundraising activities like this.)
I can hear nonprofit leaders and funders gasping, “How dare you suggest that a nonprofit leader ‘charge’ a funder for her time.” And others might worry that funders would be offended by the request and end their other contributions to Amy’s nonprofit.
But shouldn’t nonprofit leaders be aware of (and transparent about) the costs embedded in how they are spending (and being asked to spend) their time? Nonprofit leaders and funders could then have a more illuminating conversation. Perhaps Amy’s group of funders won’t want to invest $3,250 in starting up Mark’s new nonprofit. If that is the case, then they probably weren’t very committed to the new effort in the first place. Far better to know that up front rather than after Amy sunk 50 hours into something that has nothing to do with her organization.
It’s time for nonprofit leaders (and their funders) to recognize the financial value of the social change expertise those leaders possess and invest accordingly.
Photo Credit: David Lofink
I’m excited to be heading to Pennsylvania next month to speak at the 2016 Nonprofit Day Conference. My keynote address for the conference will be “The Future of the Nonprofit Sector.” I wanted to share an abbreviated version of the speech with you here via the Social Velocity Slideshare library.
In my mind, there are some fundamental shifts happening in the sector that will be important to watch. They include:
- Increasing competition in the space
- A greater demand for results and social change
- An increased use of advocacy to achieve that change
- A move to more “networked” approaches
- Less “starving” nonprofits of their operational needs
- And (of course) a move from fundraising to financing
These are interesting times, and they hold tremendous opportunity, I think, for the social change sector.
Something really interesting could emerge out of new federal rules about overtime pay. My hope is these new rules force a better conversation between nonprofits and their funders about the real costs of creating social change.
This coming December new Department of Labor rules will go into effect doubling the salary threshold for guaranteed overtime pay, from about $23,000 to $47,476 so that employees (in any sector) who make less than that threshold will be guaranteed overtime pay whenever they work over 40 hours a week.
This new rule has a potentially enormous impact on nonprofits, which (because of their resource-constrained nature) often underpay and overwork their employees. Many have pointed out what a burden this will place on an already strapped nonprofit sector, which often tries to squeeze ever more productivity out of staffs that are already working well over capacity.
As the National Council of Nonprofits argues, nonprofits receiving government contracts signed prior to this new ruling will be forced to deliver the same services at a higher cost:
“Nonprofits with government grants and contracts at any level of government (local, state, tribal, or federal) will now be put in the position of having to comply with new federal requirements that impose new costs not known when those grants and contracts were signed. Unlike businesses that can raise prices, or governments that can raise taxes or curtail public services, nonprofits with government grants and contracts may find themselves contractually bound to maintain services at increased costs that may not be expressly covered by existing written agreements.”
Certainly in the short-term this new overtime rule puts nonprofits in a really difficult position.
But I wonder if in the long-term this new rule could shine a light on the impossible situation in which many funders put nonprofits. With a new ceiling on just how many staff hours a nonprofit can get out of a dollar, I wonder if nonprofit leaders will be forced to stand up and say “Enough is enough!”
Writing in The Atlantic about the potential impact of the overtime rule change on nonprofits, Jonathan Timm seems to think the solution is for nonprofits to simply charge funders more for their services, as he put it:
“If nonprofits truly care about the well-being of their staffs, one easy place to start is simply to write higher salaries into budget proposals. Likewise, government and philanthropic funders could be a lot wiser in how they dole out money: Scarce public-service dollars can impose a state of financial stress on the people who put them to use.”
Ahhhh, if only it were that easy…
But at its core, that is the problem. Nonprofit leaders are wary of calculating and articulating the full costs (including all staff costs) of their programs, and government and philanthropic funders are unaware of and unwilling to pay those full costs. But with growing demands on a nonprofit sector already stretched to the brink, something has to give. Perhaps this new reality will force a conversation about what it really costs to address the social challenges we face, and how we must effectively and adequately support the nonprofit sector we have charged with addressing many of those challenges.
The problem has always been that nonprofit leaders are so committed to the work they do and so empathetic towards their clients that when budgets and staff are tight, those leaders simply work longer and harder and ask their employees to do the same. But with these new rules that can no longer be the case.
Program budgets will have to grow to reflect the real costs of those programs (including all of the countless staff hours previously hidden by free overtime). And funders who want more and more services at lower and lower costs will be forced to reckon with the actual costs of the programs in which they want to invest. These new overtime rules will force the “real costs” conversation that many in the nonprofit sector have been encouraging, where nonprofits calculate and report the full costs (including the actual cost of staff time to deliver the work) of the work that they do.
So instead of being a negative change, perhaps these new overtime rules could actually serve to propel nonprofits and their funders toward calculating, articulating and investing in what it really takes to create social change. Call me an optimist.
Photo Credit: Dave Dugdale