Overpaid philanthropists

By Felix Salmon
September 28, 2009
attempts a defense today of the $1 million salary being paid by the Gates Foundation to its new CEO, Jeff Raikes. It's pretty weak stuff:

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One of the Philanthrocapitalists (I believe it’s Michael Green, unless Matthew Bishop is prone to referring to himself in the third person) attempts a defense today of the $1 million salary being paid by the Gates Foundation to its new CEO, Jeff Raikes. It’s pretty weak stuff:

A cheap bad leader is much worse than a well-paid good one. Better pay could, with care, attract better leaders to the non-profit sector and enable valuable donations to be better used.

Well, yes, and a well-paid bad leader is much worse than a cheap good one. Is there any indication at all that increasing the pay of non-profit leaders increases their performance? I doubt it. (How well-run is MSF? How well does it pay its executives? Now, how about the Getty Foundation?) Unless and until such evidence emerges, this sort of thing rings hollow:

According to the sources quoted by the Chronicle, Raikes did not even want a salary (his predecessor and fellow Microsoft veteran Patti Stonesifer took no money) but the Foundation decided that paying the CEO was a point of principle.

Does Gates really think that Raikes will perform better now that he’s being paid a seven-figure salary? I very much doubt it. Instead, the salary just serves to underline Raikes’s position as a mere employee. As our blogger notes, the guy in charge is Gates, not Raikes, and the CEO position is clearly subservient to that of billg. If Raikes were working for free, he would surely feel more ownership of the Foundation than if all of his actions are bought and paid for.

What’s more, at a million bucks a year, Gates could have hired pretty much anybody he liked. If he wanted to demonstrate that the job would go to the best-qualified person, he could have found someone who was highly qualified, had a lot of leadership experience in the non-profit sector, and who wasn’t independently wealthy. Instead, he’s giving $1 million a year to a centimillionaire who doesn’t need the money and who joined Microsoft in 1981.

Why would he do that, beyond control issues? Bishop suggests that maybe he wanted to raise salaries all round — but it’s silly and anachronistic to assume that the CEO must always be the highest-paid person in any organization.

Bill Gates can and will, of course, pay anybody he likes however much money he likes. It’s his foundation. But let’s not turn his foibles into some kind of principled stand.


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Quote: “Bill Gates can and will, of course, pay anybody he likes however much money he likes. It’s his foundation.”

Actually, he can’t. The IRS scrutinizes nonprofit executive pay for what are called “excess benefit transactions.” These are transactions involving disqualified persons (and the CEO would be one of these) that result in excessive benefits beyond what the market would otherwise bear. Excess benefit transactions result in punitive excise taxes for the recipient and for the board members that approve them.

Of course, the politics of such an analysis would affect what the IRS considers “market value.”

Posted by Aaron | Report as abusive

From the context you provide I assume he is a hectomillionaire or decibillionaire. A centimillionaire is somebody who has 10 grand on his account. The metric system is a bitch.

Posted by IF | Report as abusive

Interestingly enough, even NPO Executives on aggregate, do not make as much as Federal Executives, as shown in a report by the Congressional Budget Office in 2003. However both NPO and Federal Executives did not come near the profit ceiling that Corporate Executives set.
“A 1999 analysis by CBO showed that pay and benefits for federal executives were well below those for most executives in private firms.(1) In contrast, compensation for federal executives exceeded compensation for all but the highest-level positions at the largest nonprofit organization.”

And the IRS is concerned about NPO Executives?

Gates is a smart man and none of us could contend to be smarter. If he believes this gentleman and his Foundation is worth the million dollar investment, worse money could be spent.

Posted by Sondra | Report as abusive

http://www.cbo.gov/doc.cfm?index=4459&ty pe=0

link to report mentioned above

Posted by Sondra | Report as abusive

Philanthropy at the grass root level (& maybe + 1 level) has the most effective outcome when the money is spent by a self-governing body of beneficiaries aided by passionate community workers.

Increasingly, however, modern age models of philanthropy is creating larger layers of management, bureaucracy akin to big business houses & the government machineries. Possibly the only reason for doing so is the tendency of big wealthy donors like Gates to achieve all social outcomes within his lifetime & thereby create a larger impact. It is obvious larger layers of administration will require better managers both of people as well as funds from donors.

What is required is that the donors’ money should directly reach the beneficiaries instead of traveling through myriad layers of foundations. If that doesn’t happen in Gate’s lifetime, so be it . The purpose for building big sized corporate NGO/NFPs is self defeating as effective work done by millions of small grassroots level NGOs , over decades, gets consumed by jargon-spewing highflying executives of big foundations .

I am not aware of US tax law as applicable to non-profits, so my question may seem simplistic: Why is it not Bill Gates concern only what amount he pays his own foundation’s CEO? If he thinks that’s the best way to spend his philanthropic capital, why argue?

Regarding the point that increasing pay does not increases performance…the real point is that decent pay attracts and retains competent people. There is a recurring idea that people working for non-profits ought to be saints and willingly decline fair pay for their labor becuase the cause is worthy. In matter of fact, most people employed in non-profits are working in sub-standard conditions, without adequate resources, attempting to do good work of whatever kind. Speaking as a non-profit leader myself who also spent 20 years in the for-profit world, leading a non-profit is extremely challenging, complex, and requires long hours becuase of all the social obligations involved in fund raising. I also have to put a son through college and hope to maybe sort of retire one day. I don’t make anything like the million dollars a year that high profile leaders do, but I earn every penny of what I’m paid and if the pay was much less, I’d leave and maximize my return by working in the-profit sector again.

Posted by Amy Lent | Report as abusive

Hello. As most of you I don’t really believe in pure philanthropy and I also think that if you want to have great quality you need to pay for it. Whatever is obtained for free or at cheap price is more likely to be a fraud or a worthless thing. Maybe the only exception is this program http://freeavitomp4converter.com/ that can convert avi to mp4.

Posted by Naomi86 | Report as abusive

Sadly, good but not properly paid and hence lacking motivation leaders or poor well-paid ones are what we actually face in most cases, and I cannot stand any prejudice on who should be paid most of all in the company – the one whose work is the most effective, for sure.

That’s my point of view,
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Posted by OscarN | Report as abusive

Bill Gates is rich
, Bill Gates can and will, of course, pay anybody he likes however much money he likes. It’s his foundation. But let’s not turn his foibles into some kind of principled stand. http://www.mp3tom4r.net

Posted by evernn | Report as abusive