Why Nonprofit Founders Need to Take a Salary

It’s among the most hotly debated topics in the startup and nonprofit worlds. Should nonprofit founders draw an income even as they struggle to get their organization off the ground? Or should that money be plowed back into the nonprofit to boost growth and stability?

It may surprise you, but the smartest and strongest organizations ensure their founders are taking a salary.

Read on as we explore the reasons behind this strategy and debunk common myths about nonprofit compensation.

The Founder’s Role in Nonprofits

Everyone’s work matters in new or growing nonprofits, but few people have the level of financial and emotional investment as the founders.

Through their time, expertise, and vision, these individuals are an essential force in establishing and shaping organizations. Their passion and dedication to their chosen cause make the difference between an abstract proposal and a well-organized, sustainably-run nonprofit that can help for years or decades to come.

However, this often comes at the expense of their personal relationships, leisure time, and, naturally, their bank accounts. Still, many feel intense satisfaction for their work toward a cause or issue that matters to them.

Addressing the “No Salary” Myth

Unfortunately, many new members of the nonprofit world have a mistaken notion of what it means to “work for a cause,” along with the personal implications of these beliefs.

• Some feel selfish for drawing a salary, believing it diverts funds from the nonprofit’s mission
• Others are single-mindedly focused on growing and think the cash would be better spent on new programs or salaries for personnel.

While the motivation behind these feelings is admirable, it’s not a recipe for long-term success for any nonprofit.

Well-run organizations value the time and effort of founders financially, not just to reward them for a job well done but also to prevent pitfalls like burnout or personal financial strain that can harm their ability to lead.

Founder’s Salary as an Investment

Those who’ve worked with numerous newer nonprofits know – there’s a definite positive correlation between founders who receive compensation for their work and the success of the nonprofit.

Often, these founders have extensive skills and experience that would be highly sought-after if they were employed with others. It’s also a vital part of setting an organizational philosophy that, from the beginning, attracts and keeps talented employees by fairly compensating them.

Competitive salaries aren’t a true expense but an investment in long-term stability and growth.

Factors to Consider

While it’s clear that founders should take a salary, there are still some potentially complicated issues to navigate involving the details. Nonprofits should keep the following in mind when setting the terms of compensation.

Transparency and Public Perception

Transparency is vital in every part of a successful nonprofit, especially staff and leadership salaries. Therefore, donors and others with an interest in the nonprofit should be brought into the process from the outset, allowing them to fully understand the benefits of the move and avoid the appearance of conflicts of interest.

Though the upsides should win over most individuals, leaders should be prepared to address potential criticism from both stakeholders and those outside the organization.

Ensuring Sustainability and Longevity

Founders are a critical part of growing any nonprofit from a mere idea to a fully-functioning organization. They’re vital for setting the stage for long-term viability and financial health, one of the most critical reasons they must be kept around and fairly compensated.

However, organizations also need to balance this with the financial stability of their core programs and operations, as well as any plans for future growth. It’s a difficult needle to thread, and many organizations skew too low.

Unfortunately, under-compensating founders can have negative effects in the future if they burn out or need to leave to find another job for financial reasons.

Establishing a Fair Salary

There’s a lot that goes into picking the right number for a founder’s salary. A good place to start is by checking benchmarks and data on industry standards for similar positions.

From there, organizations can adjust based on:

• Its financial situation
• The experience and personal factors of the founder

Alternatives to Direct Salary

Organizations that may be light on cash or unwilling to increase traditional salaries can also explore a variety of alternatives.

• Performance-based bonuses boost the founder’s compensation only when specific financial or other benchmarks are cleared.
• Deferred compensation is a portion of earnings that is paid at a future date when the organization will presumably be on firmer footing.
• Retirement and health benefits are a popular way to boost founders’ earnings.
• Non-financial benefits like extra vacation time or working from home can also be attractive to founders.

At the end of the day, it’s about striking a balance between the individual needs of the founder and the short- and long-term needs of the nonprofit.

Nonprofit Founders…Please Take a Salary

It’s time to shift the thinking surrounding the value of contributors from nonprofit founders. These driven, hard-working individuals put their all into growing an organization to support causes that change the world. It’s only fair (and smart) to compensate them appropriately.

If it’s all a bit overwhelming, don’t worry – The Charity CFO can help. Reach out today to learn how we can help with setting salaries, financial management, and so much more to get your nonprofit off to a perfect start.