Dan Pallotta speaks out on TED about nonprofit overhead caps

Dan Pallotta/TED

Dan Pallotta, a consultant who works in the non-profit sector, gives a lively presentation on the topic of the economics of survival in the world of charities. He good humoredly points out that non-profits cannot compete with for-profit companies for talent, capital, or visibility. And he is pissed off about it.

At one point Pallotta provides us with an anecdote from his own experience with the problem as he sees it. When he worked for a charity that ran a major walkathon, he was able to see the amount of  money collected for the charity soar to over $90 million and then sink to less than $10 million, a roller coaster built on the fact that no non-profit can spend enough on overhead to keep going. This is because there is an assumed ethical cap on that spending. The public won’t stand for it if you pay your officers a competitive wage, allow them necessary travel expense accounts and give them whatever it takes to retain their services, which may go for a higher price in corporate venues.

Pallotta points out that a young college graduate can go into business and reasonably hope to be making six figures by the time they’re thirty. But the same college grad going into the non-profit sector may feel  bitter about making far less that he would in the corporate world.  What may be seen as an irony of this system is that the well-paid person in business can afford to give generously to his favorite charity, getting a tax credit and acknowledgment of his generosity, while his non-profit colleague languishes with little hope for large merit raises.

According to Pallotta, the origins of our broken charity system can be traced back to the Calvinist Puritans who were great at making money and even better at feeling guilty about it. To gain penance, they decided to give a percentage of their wealth to charitable deeds. But being good businessmen, they kept the giving to a minimum. Praying on it, they came up with 5%.

Dan Pallotta can be seen and heard on TED.com.