Ethical Standard Deep Dive: Standard 21

Throughout the month of October, members of the AFP Ethics Committee will be addressing each of the standards in our Code of Ethics. Barbara Levy, ACFRE, FAFP discusses percentage-based compensation, finder’s fees and contingent fees.

< See All Ethical Standard Deep Dives

Standard 21: Members shall not accept compensation or enter into a contract that is based on a percentage of contributions; nor shall members accept finder’s fees or contingent fees.

Barbara: Someone once asked me, “What kinds of ethical issues are there in fundraising that require a Code of Ethics?” That was my wake–up call to realize that the general public does not have a clear understanding of our profession and the issues about which fundraising professionals must be concerned.  This question was asked by a well-educated individual; and it took me by surprise.  I was somewhat challenged to explain with clarity and brevity the serious nature and responsibilities of a fundraising professional. 

Having had this experience, I was less surprised when being interviewed for an executive position at a large agency.  I was asked by the president of the Board if I would accept compensation for the position with a base salary and the additional balance based on what I raised.  I had not expected such a question from a well-respected, high-ranking business professional.  But at least my previous experience afforded me the opportunity to clearly express why I could not ethically accept such a proposal.

The positive outcome of this interview was especially rewarding in that I was able to explain the collaborative nature of the fundraising process.  He then understood that his role in identifying and introducing me to a prospective donor should not be rewarded with my increased salary. Furthermore, and equally important, was his realization that the agency program staff, as well as the CEO’s participation, played a major role in educating and inspiring someone to offer a gift. The realization for me was that if I was not able to make clear that I could not accept that offer, I might very well have to decline the opportunity to accept this position.

These experiences have reinforced my dedication to ensuring a more complete understanding of ethical standards for trustees and staff; as well as an awareness that these standards are at the heart of a successful fundraising program.

(For more information on AFP’s prohibition on percentage-based compensation, finder’s fees and bonuses, read our position page on compensation).

Guidelines

• Members accept compensation based upon experience, expertise, and the time requirements of the engagement.
• Percentage compensation is any payment based on the monetary value of contributions; a finder’s fee is a fee paid for bringing a donor or contribution to a nonprofit organization, whether or not the fee is based on a percentage of funds raised.
• Members, if declining an offer of compensation based upon a percentage of the funds raised, will provide information in support of this standard, such as the AFP Position Paper on Professional Compensation.
• Business members must refrain from receiving compensation from third parties derived from products or services for a client without disclosing that third-party compensation to the client (for example, volume rebates from vendors to business members).
• Members recognize that fundraising is a continuing practice in which present funds received may be the results of efforts of others in previous years, and, likewise, current fundraising activities may result in future funds.
• Members must not seek, pay, or accept, percentage-based compensation or commissions for obtaining philanthropic funds.
• Members help organizations recognize that costs involved in fundraising include staff compensation and that donors do accept organizational costs for such activities.
• Members who offer services as proposal writers must not receive compensation calculated on a percentage of funds sought or raised (e.g., a member who drafts a grant proposal cannot receive a percentage of that grant if it is awarded).
• Members disclose fully any fees deriving from a third-party vendor as a result of the referral of a client if there is a discount for the business member because of the charity aspect of the transaction.
• A vendor must not profit from a relationship with a charity without disclosing that fact to the charity. If subcontractors to a vendor have provided a discount because of the charity involved, then that discount must be transparent between the charity and the vendor.

Examples of Ethical Behavior

1. Refusing to accept any part of one's compensation as a percentage of funds raised or expected to be raised.
2. Recognizing the difference between percentage-based compensation and a bonus plan, accepting only the latter should it be part of an organization's regular practices. (See Standard No. 22)
3. Promoting the principles upon which the guidelines for this standard are based.
4. Urging your organization to avoid paying a third party — such as an attorney, financial planner, face-to-face fundraisers (street solicitors) or provider of such services as direct mail and telemarketing — a fee for service that is a percentage of the value of the related contribution or trust.
5. If working as a proposal writer, agreeing in advance to a fixed fee (including any bonus schedule) for services provided, not contingent on a percentage of the grant awarded.
6. Disclosing payment(s) from a third party which is directly related to a transaction(s) with a client.

Example of Unethical Behavior

1. Accepting percentage-based compensation because an organization lacks sufficient budget, with the expectation that such will be converted to salary or fee when funds are available.
2. Disguising compensation as salary, fee or bonus when it is, in truth, a percentage of funds raised.
3. Accepting a compensation package in which a part is salary or fee and the balance is to be made up of a percentage of the funds to be raised.
4. As a business member, failing to disclose to a client’s compensation received from a third party through the provision of services to that client if the discount was made because a charity was involved.

Supported by: 
The Claudia A. Looney Fund for Ethics in Fundraising
&
The Patricia F. Lewis Ethics Endowment Fund