Insights Into Incentive Compensation
Few topics in the development profession are as polarizing as the idea of providing financial incentives to development officers. Some see these incentives as a form of commission, which has long been anathema to the field. Others see incentives as one technique among many for addressing the talent challenges faced by the industry.
Larger fundraising programs have been using incentive compensation for decades. Yet conversations about these programs are often held in hushed tones. Even development program leaders who are using them ethically and effectively are aware that there is still a significant stigma attached to the idea of tying fundraisers’ compensation to their productivity.
We asked senior managers of higher education development programs to tell us about their assessment programs for development officers. Our study explored the results achieved by those programs using performance metrics alone and by those programs with a formal incentive compensation structure.
Retention of strong performers was the most commonly cited rationale for an incentives program, followed closely by increased fundraising results. Our work with universities over decades has shown that the former leads to the latter. It commonly takes 18 to 24 months to develop an engaged prospect to the point of successful major gift solicitation. Staff turnover can disrupt the process. Our study found that programs with incentive compensation showed positive results in both of these key areas.
Employee retention improved, and dollars raised increased. These results challenge two common negative perceptions about development officers: first, that they change jobs frequently; and second, that they will sacrifice relationship building in favor of soliciting smaller gifts in the short term to achieve their incentive pay.
Programs using metrics without incentive compensation also saw improvements in staff and program performance. We have seen that strong development officers thrive in environments where expectations are clear and where they are supported in achieving these expectations. In the competition for a scarce pool of talented, experienced officers, the thoughtful and strategic use of performance measures may give a hiring university an advantage in attracting the interest of discerning candidates.
There are cultural challenges with incentive compensation programs. Other parts of the university, and other staff within the development program, may resent those who receive incentive pay. Vice presidents might find themselves having to determine what balance they want between high program performance and overall employee morale. And universities must be prepared to discuss these programs candidly and persuasively with donors who inquire.
This is the first publication of a study we intend to repeat over time, as this component of the field continues to evolve. We welcome your feedback and look forward to discussing these findings with you.