• Twitter, Facebook, and now the Minnesota Orchestra: everyone’s going public these days. State legislators announced a bill last week to save the troubled ensemble and gauge public support for its continuation by making it “a community-owned entity in which any individual or group could buy stock.”

MUSICAL CHAIRS

• Robert Vagt, the President of the Heinz Endowments, has announced his resignation, not long after two staff members were fired amidst controversy over Heinz’s support for the Center for Sustainable Shale Development. Vagt himself had faced criticism for his connections to the energy industry.
• Expanding his reach outside of the arts field, Americans for the Arts President & CEO Bob Lynch has been elected to Independent Sector’s Board of Directors.

IN THE FIELD

• Here’s an arts organization that talks about “combining resources” and sounds like it really means it: the Las Vegas Shakespeare Company is rebranding and revamping its building as the “Cultural Corridor Theater Center,” sharing its costume and scene shops with other companies and bringing in commercial tenants to boot.
• Fractured Atlas has launched Artful.ly, a cloud-based platform that helps artists and arts organizations sell tickets, take donations, and track their fans.
• Hoping to replicate the success of the Met Opera, London’s Royal Opera House is simulcasting a portion of its 2013-14 season in movie theaters across the United States.
• A new “due diligence” company has been founded to serve potential investors in art. The good news is you can hire The Art Compliance Company to verify the provenance of that Pollock you’ve been eyeing. The bad news is you may need to.
• DePauw University is making big changes to its music school with the help of a $15 million contribution used to establish the 21st Century Musician Initiative (21CM). DePauw hopes the new program will “better meet the needs of students entering a rapidly changing music industry.”
• Brooklyn-based community art center and co-working space 3rd Ward unexpectedly shuttered its doors last week, leaving artists and members without access to studios and supplies. Hyperallergic details its rise and fall of the financially troubled center and the sometimes “uneasy alliance between businessmen and the ‘creative communities’ they cultivate.”

ALL ABOUT THE BENJAMINS

• Chalk one up for data-driven grantmaking: after the First Peoples Fund issued a study showing that training in entrepreneurship and financial management makes a real difference to the economic self-sufficiency of Native artists (a category that includes nearly a third of Native people), the Northwest Area Foundation announced it will give $1m over three years to support a pilot of just this kind of intervention.
• Consultant Marc Vogl argues that more of the millions of philanthropic dollars donated by the tech industry in the Bay Area could make it to the arts with a slight change in tack from arts organizations.
• High demand and low supply have driven housing costs in San Francisco to extremes and sparked migration to places like Oakland. Both cities made the list of top ArtPlaces in 2013.

BIG IDEAS

• As the vaguely Soviet-sounding National Innovation Summit for Arts & Culture gets underway in Denver (attend virtually here), the arts blogosphere is abuzz with meditations on the “i” word. Howlround hosts a three-part series on the importance of organizational innovation; Isaac Butler one-ups them with what he claims will be a four-part series questioning that importance; and Culturebot has a six-part series problematizing the “innovation agenda.”
• Two thoughtful reflections on what could be lost as our cultural landscape is transformed by technology and commerce: Nancy Levinson on print vs digital and the fate of “serious” publishing, and Ben Davis on Big vs Small contemporary (visual) art and the fate of little galleries.
• The bookworms at Fractured Atlas are back with a review of Mission in a Bottle: The Honest Guide to Doing Business Differently – And Succeeding, by Honest Tea co-founders Seth Goldman and Barry Nalebuff (the latter of whom happened to be Ian’s entrepreneurship professor in business school).

RESEARCH CORNER

• The Community Foundation for Greater New Haven has published a data-driven overview of the state of the nonprofit sector in the area, compiling information from the Nonprofit Finance Fund’s State of the Sector report; the Foundation’s own giveGreater database; IRS data; and survey results.
• Major players like JSTOR and the University of California system are starting to offer low-cost or even free access to academic articles and research.
• Charity Navigator released findings from an in-depth study of CEO salaries at 3,929 mid- to large-sized charities around the U.S. On average, a CEO earns about $125,000 annually and Charity Navigator cautions donors to “be skeptical of charities that pay salaries hovering near or above one million dollars.”
• If you feel like studies on the “creative economy” have been all the rage, you’re right. At least 27 reports on the topic were released between 2003 and 2012, and The National Creativity Network went ahead and analyzed them. Seems like we’re all defining the creative economy/industries in slightly different ways, and while “a case for a national data-based definition of the creative economy can begin to be constructed,” we’re more interested in focusing on our own specific regions.
• Researchers examining an 1814 change in British copyright law have determined that extending copyright protections caused payments to authors to nearly double.
• This nifty study on novelty in film from the Rensselaer Polytechnic Institute in New York suggests that creativity in film peaked in the 1960s, following the demise of the “Big Five” studio system.
• WolfBrown has published a summary of its four-year evaluation of a New World Symphony initiative to develop new concert formats appealing to younger, inexperienced, and more diverse classical audiences.
• Media Impact Funders has released a new report exploring the in-house media efforts of cultural organizations and the funding that supports it. The report, Molto + Media; Digital Culture Funding, profiles nine organizations including Fractured Atlas and Sundance Institute and summarizes funding trends.
• The Future of Music Coalition scours the NEA’s new Survey of Public Participation in the Arts (which we covered in the last edition of Around the Horn) and finds that music has avoided the declines in participation seen in other genres, with nearly a third of all adults attending a musical performance last year.
• Speaking of FMC, a new survey suggests that artists are uninsured at twice the national average and, when they do have insurance, as six times as likely as others to pay for it themselves. All the more reason to get the exchanges working…
• A chorale a day keeps the gerontologist away? Building on previous studies on the benefits to older people of singing in choirs – among other quality-of-life indicators, “choir membership can also reduce snoring, ease emphysema, [and] soothe irritable bowel syndrome” – the NIH is funding a five-year clinical trial in San Francisco.

• The National Endowment for the Arts has shared a draft of its strategic plan for FY14-18, and in what I believe may be a first, is inviting public comment on it via SurveyMonkey. Ah, these modern times we live in. Now let’s just hope House Republicans don’t succeed in slashing its budget by 49%.
• A new report from the Wagner School of Public Service at NYU and the Center for an Urban Future details 15 policy innovations for cities that are “novel, proven and scalable.” While no arts-specific innovations made the list, one of the ideas is a type of “digital badging” program found in Philadelphia, Providence and Chicago that “allow[s] students both inside the K-12 system and outside to earn credentials for skills they learn in a wide variety of educational settings, from digital tools workshops at public libraries to art classes at museums.”
• The City of Buffalo is at risk of losing over $1 million worth of donated musical instruments if it follows through with cuts to music programs in its schools.
• The City of New York has taken over management of the financially troubled South Street Seaport Museum.

MUSICAL CHAIRS

• The McKnight Foundation has hired Arleta Little as arts program officer, replacing Laura Zimmermann. If she’s looking for advice on how to settle into her new role, she can check out this completely awesome video Laura made as a goodbye kiss to her old employer.
• After 25 years in various positions at the Ford Foundation, philanthropy data nut and friend of the blog Kyle Reis is now Senior Director of Global Data Services at TechSoup. Here he is writing about the Foundation Center’s Reporting Commitment.

IN THE FIELD

• Doug Borwick offers a range of thoughts from the Americans for the Arts Convention.
• So long Codaex, a European classical music distributor.
• A new national network of Latino theater companies has formed in Southern California. Service organizations will note with interest that a Theatre Communications Group conference was the forum that provided the initial push.
• In very sad news, Rick Lester, founding CEO of arts marketing consultancy TRG Arts, passed away suddenly last weekend while participating in a bike ride for charity. TRG, which is notable for its management of nearly two dozen community arts patron databases across the country, has a memorial page up with a myriad of touching tributes from colleagues past and present.

BIG IDEAS

• The NEA’s Jason Schupbach reflects on the Our Town program now that its third round of grants has been announced.
• The Internet is democratizing all sorts of things, not just the arts. Here, the Atlantic reports on the rise of citizen cartography.
• Rather than trying (or refusing) to do more with less, why not use the challenge as an opportunity to explore constructive partnerships?
• Two more than worthwhile perspectives on the past and future of online marketing, from Seth Godin and Adam Thurman.

ALL ABOUT THE BENJAMINS

• Attention study-at-home MBA candidates: the Center for Effective Philanthropy’s Phil Buchanan points us to a motherlode of Stanford philanthropy case studies made available for free recently via Laura Arrillaga-Andreessen’s ProjectU. CEP also has some tips for communicating with grantees.
• Rick Noguchi of the Irvine Foundation offers an inside look into grant deliberations and explains how the foundation made some of its decisions in the most recent round of the Exploring Engagement Fund.
• Streaming music services in general, and Spotify in particular, have come under increasing criticism from musicians for their ultra-low royalty payout rates. Most recently, Radiohead’s Thom Yorke and several associates decided to pull their music from the site in protest. But is Spotify actually undercutting music piracy rather than album sales? As usual, the folks at Future of Music Coalition have turned in the most thoughtful analysis we’ve yet seen on this issue.
• Thinking about starting a crowdfunding project and not sure how to figure out the budgeting? You might want to try Taylor Davidson’s financial modeling template in Excel.

RESEARCH CORNER

• A new report from Americans for the Arts details the mostly modest salaries of local arts agency employees. But who says you can’t get rich being an arts administrator? Indeed, the NEA’s Sunil Iyengar has a long post on income inequality in the arts, and the idea that it may be portending changes in the economy as a whole. And Diane Ragsdale considers the interesting question of whether being paid too much “crowds out” one’s existing intrinsic motivation to work.
• Can we make a dent in poverty just by teaching parents how to parent better? A long-term study from Jamaica suggests maybe so. Meanwhile, the achievement gap between rich kids and poor kids is now twice as large as that between black children and white children. The cause of poor performance by poor students? No one’s quite figured it out yet, but it’s not bad teachers, nor is it moms on crack. (Seriously – a 23-year longitudinal study in Philadelphia has revealed that being born to poverty affects kids’ cognitive development far more than whether or not their mothers were on crack while pregnant. Think about that one for a bit.) Here’s a map of poverty and race in America.
• Boston’s Charles River is finally swimmable again – a concrete example of a data-driven policy success. (And it took nearly two decades to make it happen.)

ETC.

• Congratulations to Andrew Taylor on a full decade of his blog, the Artful Manager. That is quite a milestone in this space! Andrew had it going on pretty much light years before any of us.
• Ben Huh, the head of I Can Has Cheezburger (better known as the home of LOLcats), on “bad art”:
  

  [W]e are entering an age where there is very little in the way between an idea and an expression online, and that means more and more people are participating in ways of expressing themselves. What we do is encourage that artistic expression even if we don’t recognize their creations as “fine art.”

  Human beings have this incredible desire to connect and express themselves and that is what is filling up our time on the Internet, and I don’t think that is bad. It is actually a wonderful thing.

CLOSURES, OPENINGS, MERGERS, AND PAY CUTS

• Gentrification claims another arts space in Williamsburg.
• The Sacramento Opera and Philharmonic are in active merger talks.
• I would like to see more of this kind of story: after Pittsburgh Symphony musicians agreed to a new contract that forced them to take a 9.7% pay cut, their music director, Manfred Honeck, announced that he would take a 10% cut too. Of course, Manfred can afford to lose a bit of income, as he made $546,700 last year. But still, it’s surprisingly rare that we see even this much of a gesture from the leaders of organizations under financial duress. Meanwhile, the Wichita Symphony players recently accepted a further 20% pay reduction, on top of a voluntary wage cut of nearly 14% over the past two years. No word on any concessions made by the music director there.

MUSICAL CHAIRS

• Paul Brest, who has been president of the William and Flora Hewlett Foundation for a little over a decade, is retiring next year.
• Antony Bugg-Levine will be the new CEO of Nonprofit Finance Fund. Bugg-Levine was formerly Managing Director of the Rockefeller Foundation, and is an expert in impact investing.
• Mario Garcia Durham, the former NEA Director of Artist Communities and Presenting, will be the new President and CEO of the Association of Arts Presenters, replacing Sandra Gibson.

PHILANTHROPY TALK

• The philanthropy/nonprofit blogspace is all abuzz over the fact that GOOD, a for-profit media company focused on social causes, has bought Jumo, the social media and crowdfunding platform for nonprofits started by Facebook co-founder Chris Hughes. The fact that Jumo is itself a nonprofit that was started with the help of $3.5 million in grants from the Ford and Knight Foundations and Omidyar Network seems to be the source of the intrigue.
• Good news for cultural diplomacy enthusiasts: New York’s Robert Sterling Clark Foundation has dramatically increased the resources it is pumping into international cultural exchange programs. A list of grants made so far is available here.
• The Save America’s Treasures grant program, administered through the National Trust for Historic Preservation, is shutting down.

RESEARCH CORNER

• Emerging arts leaders: do the Americans for the Arts Emerging Leader Council and your fellow citizens a solid, and fill out this survey to share tips, tools, and resources that you find useful with your peers.
• Musicians: do the Future of Music Coalition and your fellow citizens a solid, and fill out this survey about the ways in which you make your money (or don’t). I hear there are iPads to be won!
• I think it’s pretty awesome that the American Planning Association would publish a report called “Community Character: How Arts and Culture Strategies Create, Reinforce, and Enhance Sense of Place.”
• The Aspen Institute is studying artist-endowed foundations.
• Ways in which cities are using data and research to improve citywide out-of-school-time (OST) systems.
• Freakonomics contributor Daniel Hamermesh is out with a new book called Beauty Pays: Why Attractive People Are More Successful. I’ve been interested in this topic for at least a decade, ever since I first became aware of psychology and economics studies showing the substantial life benefits reaped by attractive people, and am glad to see it starting to enter the mainstream conversation. Curiously, the data suggests that there is more downside than upside to the attractiveness game for men as compared with women. Hamermesh goes so far as to make a (fairly cogent) argument for fashioning a legally protected class out of the ugly. Fascinating stuff!
• Sage advice for young cultural researchers from Canada’s Lidia Varbanova: “Cultural policy research field is rewarding but not an easy one: it requires a good portion of diplomacy and negotiation skills as it reflect diverse stakeholders because research without policy actions stays only in the libraries without real impact on improving the creative life of cultural professionals and the communities. It also needs patience, as in many cases undertaking practical policy actions as a result of research findings requires time, lobbying and joined advocacy efforts.”

ART AND THE LAW

• The previously-blogged New Jersey plan to require nonprofits in the state to allow program-restricted donations has been thankfully dropped.
• A little-known provision in current copyright law allows artists to apply for reinstatement of the ownership rights to their work after 35 years. That deadline is coming up and record labels, publishers, and others that rely on the assignment of copyright (and milking cash cow artists) for their business model are understandably freaking out about it and trying to challenge the law. The conflict centers on whether (for example) albums made under a recording contract can be considered “work for hire” and thus belong to the record company by default. With the legal ramifications unclear, Representative John Conyers has come out on the side of the artists.
• I never thought I’d be writing these words, but there is going to be an arts policy storyline on a major network television show.

ART AND GOVERNMENT

• Sam Brownback just doesn’t know when to quit. Not satisfied with being the first governor in history to completely defund his own state’s arts commission, now he’s having his chief of staff show up at ribbon-cutting events to mouth off about how wonderful the arts are. Meanwhile, he refuses to reconsider his decision – despite the fact that the state now has a $180 million surplus.
• Jay Dick from Americans for the Arts explains the complex web of societies for elected officials and why AFTA tries to have a presence at their convenings. In my (still developing) observation, this type of advocacy seems to be what AFTA is best at: the behind-the-scenes relationship building that takes place in different corners of the country and among policy insider circles. I sometimes think AFTA doesn’t get enough credit for its work in this area, which to my mind would be very difficult for others in the arts field to replicate. It’s definitely soft power rather than the hard power represented by massive lobbying dollars or enormous mobs with pitchforks, but soft power is better than nothing.

INTERNATIONAL AFFAIRS

• Diane Ragsdale considers the shape of arts cuts and new funding models in the Netherlands and Australia. Meanwhile, severalEuropean impresarios talk about the effect of recent budget cuts on their plans and speculate about the future.
• Sad news: a British cultural council in Afghanistan has been the focus of a terrorist attack. At least twelve people died in the fighting, mostly Afghani police and security guards.

AND SO ON…

• If you’re hankering for some great live jazz streamed direct to your computer, Tara George has your fix.
• I enjoyed this neat idea from Andrew Taylor on “job function trading cards.” He’s definitely right that small organizations risk making suboptimal use of their employees’ unique talents because they are too beholden to job descriptions.
• It sounds a little ridiculous, but I actually think these “gofer” services popping up are pretty brilliant. Besides providing value to buyers and sellers, it could help the long-term unemployed stay productive and earn a little on the side.

Posting has been light around here lately because I am in the midst of another move. I am coming to the end of my official residence in Rhode Island, where I have been plying my trade and generally causing trouble for the last year or so. I’m moving back to New York to join the rest of my Fractured Atlas colleagues in the West 35th St office, and have been subletting a place this month in Harlem/Morningside to provide a home base for apartment searching (which thankfully looks to be over) and unpacking. I really enjoyed my time in Providence – it’s a very cool small city that has a lot going on for its size and very much “gets” the value of the arts and creative industries in a way that many places don’t.

• Much has been made of the NEA’s new investment in urban revitalization, but since the agency’s budget looks like it will be the same or a little less compared to last year, this is all something of a zero-sum game. In this case, looks like Dana Gioia’s “The Big Read” program is the big loser in Rocco’s reorganization of agency priorities. (As an aside, I came across this old-ish articlecatching up with former NEA Communications Director Yosi Sergant this weekend and noticed the following observation: “in Sergant’s department of 14 people, four were dedicated to making books-on-tape.” Another legacy of Gioia’s literary-centric worldview, perhaps?)
• By the way, did you know the NEA has a YouTube channel? Here’s Design Director Jason Schupbach talking about “creative placemaking.” There’s much more here.
• Meanwhile, right wingers are hot on the trail of arts funding again, though so far it seems less organized than it was for the Sergant incident. The same “arts jobs are not real jobs” lie that we heard during the stimulus fight is once again front and center. (Michael Rushton patiently explains why it’s not true.) Senators Coburn and McCain have continued to identify arts projects supported by the federal government as “wasteful” for no other reason than that they are arts-related, offending Gary Steuer in the process. Perhaps more troubling is the newfound focus by conservatives on state and local funding for the arts, led predictably by Glenn Beck.
• Looks like Bill Gates’s and Warren Buffet’s efforts have had some impact: 10% of the world’s billionaires have now adopted the Giving Pledge to donate at least half of their wealth to charity before or at death. Notable arts supporters among the list include Gerry and Margaret Lenfest, Eli Broad, Michael Bloomberg, Paul Allen, Joan and Irwin Jacobs, Bernard and Barbro Osher, and Sanford and Joan Weill. Hopefully they’ll listen to Kathleen Enright’s advice for them.
• Grantmakers in the Arts is ramping up an interesting-looking series of guest blogs, and the latest is a grantmaker-grantee conversation between Ute Zimmerman and Theaster Gates.
• Retrospective: Michael Kaiser looks back on the Arts in Crisis tour, and Conni of Conni’s Avant-Garde Restaurant takes stock of inventory after a year of support from the Economic Revitalization for Performing Artists program.
• Delinquent nonprofit form filers are getting one last chance from the IRS to prove they still exist: file the 990-N “postcard” form online by October 15. Otherwise, it’s lights-out.
• Newsweek may be considering going nonprofit.
• Massachusetts has signed a law empowering local communities across the state to define their own cultural districts and identify incentives for their development. The Massachusetts Cultural Council will manage the program. Earlier this summer, the MCC had been in danger of getting moved under the aegis of a new quasi-public agency called the Massachusetts Marketing Partnership, but it looks like that proposal is off the table.
• So in addition to seven-figure salaries, we need to be giving top culture executives seven-figure tax-free housing as well? I want to see Dan Pallotta‘s defense of this. It’s not all fun and games, though – sometimes you get a full-fledged performance review from your colleagues in the New York Times. If you too want to be a culture executive, Laura Zabel explains how did she get that job.
• I was totally going to give Devon Smith a rest after linking to her blog a bunch of times over the last few months, but dammit, she keeps coming up with fantastic new stuff that can’t be ignored. Her “Social Media Measurement Plan” is perhaps her most ambitious post yet, chock-full of tips and tricks to track your online footprint. It’s seriously a must-read. I’m starting to think maybe we should try to keep Devon from getting a job after all because then she’ll keep giving this stuff away for free. (Just kidding, D.) Devon has a panel proposal in the mix for South by Southwest Interactive; and Fractured Atlas has two, one for Interactive and one in Film.
• By the way, you can vote for those SxSW panels, thus helping to choose the content of the event you’re going to. Ever since I wrote that article on crowdsourced philanthropy platforms, I’m always coming across new systems that I wish I could have discussed as part of it. Case in point: IDEO’s new collective design hub for the good of the world, OpenIDEO. Meanwhile, Lucy Bernholz declares “Curator” to be the philanthropy buzzword du jour.
• Iranian leader declares music incompatible with Islamic values.
• Are affluent Westerners psychologically different from the rest of the world?
• So, this is…unexpected: Paul Miller, aka DJ Spooky, “is setting up a foundation dealing with contemporary art in the South Pacific [specifically Vanuatu], he’s got 400 acres of land on the island, and will be inviting artists, writers, film makers, composers etc from all over the world to do small residencies of several weeks each. They’re going to have artist residencies starting mid next year, and the whole venue will be based on bamboo.”

• Picking up where last week’s pro-Europe screed left off: Britain now decides it’s not only going to fund rehearsal space for bands, it’s going to create up to 10,000 entry-level jobs in the culture industries. Iceland, on the other hand, is having some problems.
• And over in this hemisphere? The latest out of Massachusetts is that the Mass Cultural Council might be in for a 57% cut. (h/t Parabasis) I haven’t seen this reported on or corroborated anwhere else since then, so maybe it’s just a false alarm, but if it’s not, it would be a gut punch to arts in the Bay State. Yes, in times like these, it’s always nice to read headlines like NEXT YEAR COULD BE A WHOLE LOT WORSE. Thanks, Barry. At least SF Foundation arts program head John Killacky offers these helpful survival strategies for arts organizations at Blue Avocado.
• OK, so it’s not all bad: Creative Capital just got a $15 million challenge grant from the Andy Warhol Foundation in honor of its 10th anniversary, and the White House is keeping the door open for dialogue, meeting with a group of “grass-roots activists” organized by the Nathan Cummings Foundation last week.
• The real reason CEO pay has skyrocketed in recent times? A horribly unscientific conception of “the market” for CEOs, rife with selection bias toward already highly-compensated individuals.
• So apparently, structured search is the Next Big Thing. For a demonstration, check out this nifty video advertising Wolfram Alpha, which is being hyped as a “Google killer” (early returns: not so much). For its part, Google is not about to give up the throne without a fight.
• Here are some more art/community/development nonprofits learned about in the past week (jeez, they’re everywhere): Chattanooga’s CreateHere, DC’s Cultural Development Corporation, and New York’s Municipal Art Society. Plus, there’s this story on a community art center in Detroit (the “Power House”) on NPR from back in March. I’m starting to think this field is ripe for an interest group.

It seems to me the devil is in the proverbial details on this one…

Is there a number you have in mind that, once crossed, makes compensation unreasonable? How much does an organization’s budget size matter? Is performance completely irrelevant, or are you more tolerant of high compensation when the long-term performance seems to justify it? Should we consider whether someone has grown an organization or merely stewarded it?

And then, a few moments later:

Another thought occurred to me…

What about compensation for specialists at NFP orgs? For example, the Chief Investment Officer at the Ford Foundation makes nearly $1M/year (see Guidestar). But that person is responsible for investing over $12B in assets. That’s pretty important! And the specialized skills involved would be in demand at any Wall St firm, so there’s real competition from the FP sector.

I don’t think it serves the sector to be skimping on some of this stuff.

These are important points, and kudos to Adam for raising them. The first thing I’d say is that I don’t disagree in principle with people like Dan Pallotta or Sean Stannard-Stockton who say that we shouldn’t care about the magnitude of compensation so long as the organization is producing a level of impact that justifies it. I guess where I differ with them is on a couple of points: first, I am deeply skeptical that performance and compensation are all that highly correlated among nonprofit executives, or that simply offering higher compensation would somehow increase that correlation. Secondly, I feel that one must consider an executive’s performance in terms of not only the total amount of impact generated but also the counterfactual scenario of the impact generated by a hypothetical lower-priced executive’s performance. Obviously that latter concept is impossible to measure exactly, but to explain what I mean in more basic terms, I want to know if a high-priced CEO is just coasting off of the firm’s own internal momentum and/or accidents of history, or is he/she generating that momentum him/herself.

To address the question about growth vs. stewardship, clearly one job of a CEO is to grow revenues. However, that’s not his or her most important job. The most important job is either growing profit or growing impact, depending on which sector you’re talking about. Either of these can be accomplished with flat or decreased revenues. So to me, growth is an interesting but ultimately fairly incidental factor when considering appropriate compensation. Budget size matters up to point, insofar as you can’t just make up money out of thin air, but after an organization gets past a certain size ($20-30 million?) I think impact should matter much more.

Is there a magic number? Following my logic above, no, but Seth Godin says the following in the post I linked to the other day:

After a million dollars or so in salary, the absolute amount that a person is paid has no real impact on their life. They can’t eat more meals in a day or wear more shoes. What matters to the manager is the relative amount. How much more would I make over there? Why does that company pay its CEO more than my company pays me?

Seth’s number is a million bucks; I’d put it a fair bit lower than that, particularly if one doesn’t live in New York City or the Bay Area. But basically that’s the idea. I have no problem with reasonably demanding jobs supporting reasonably comfortable, upper-middle-class (or lower-upper-class) lifestyles. As one gets further and further beyond that horizon, though, for me the expectation becomes exponentially greater that the higher salary will be justified by some sort of extraordinary evidence of impact. And if it’s not, then I for one start to lose trust in individual and organization alike.

Adam also asked about investment professionals. I just took an endowment management class where we discussed this very issue in some depth. Here’s the thing: it may be hard to believe, but those folks who earn $1m+ from managing Ford’s assets are actually already forgoing much higher pay packages that they could earn in the private sector. The other thing to consider is that investment professionals’ skills are more transferable between for-profit and non-profit sectors and that it is easier to measure their performance than that of CEOs. (Though Seth G., again, would argue that the whole system is messed up: “should the guys who drive an armored car that carries millions of dollars in bonds get paid more than the guys that drive an armored car that only carries thousands of dollars in cash?”) So I agree that there’s a slightly stronger rationale to pay investment managers what they get paid, though I would still think it’s important to consider whether the premium for a “blue chip” candidate over a less obvious but clearly mission-driven one is really worth it, especially when one considers the program funds and potential PR/trust issues at stake.

I will be back with my promised post on nonprofit compensation and lower-level employees in short order.

I’m sorry, but after the failure of a number of companies this past fall led by some of the most well-compensated individuals in history, can’t we retire once and for all this notion that “the best” employees are the ones who command the highest salaries? When financial professionals justify their enormous pay packages by pointing to gains by their companies in the market, and then still take home enormous pay packages when their companies lose billions of dollars in that same market, isn’t there something wrong with this picture?

As I see it, the argument for current executive compensation practices rests on three separate faulty assumptions:

• They’re worth it. Simply not true, according to academic research on the subject. (h/t FiveThirtyEight) Furthermore, with any new hire there’s a level of uncertainty, a risk factor if you will, about their effectiveness in a new environment. Past performance is no guarantee of future results, after all. Automatically offering to pay a candidate more than what he made at his last job ignores this risk factor.
• If you didn’t pay them that much, they’d go somewhere else. Sure, this will be true so long as other companies participate in the same conspiracy of self-deception with regard to the other assumptions. However, many companies, particularly well-established ones, fail to properly value the non-monetary benefits that they provide to top employees, including connections, influence, prestige, and the enhancement of future career prospects. In fact, a study by former Yale SOM Dean Joel Podolny found that workers in the financial industry will actually demand more compensation to work at lower-status (i.e., non-bulge-bracket) firms, with the corollary that higher-status firms—which are invariably firms that can pay more—can actually offer lower compensation and still get the same-quality employee.
• No one else could possibly do this job. Any executive position at a reputable company will have hundreds, maybe thousands of quality applicants. Is the difference in performance between the person eventually hired and someone a bit farther down the pack so vast as to be worth a 30, 40, 50% premium? Do you seriously mean to say that there are people who would have done worse for their companies than the recently departed CEOs of Bear Stearns, AIG, and Merrill Lynch? Isn’t it at least possible that a less experienced candidate with fewer external credentials but more integrity and intellectual honesty would have produced far better results?

The reality is that the highest-compensated executives in a given industry are not necessarily the best or most talented leaders of companies in that industry. The people who are in the best-compensated positions are merely the people who are the best at securing compensation for themselves. Should they perceive an opportunity to secure even more compensation somewhere else, leaving their current company in the lurch, they will not hesitate for an instant to make it so. It’s a classic agency problem.

A lot of this confusion stems from a narrow-minded focus on salary as the single axis of measurement for the worth of a job to employer and employee alike. Seth Godin addressed this issue recently and put it like this:

Law firms went through this cycle twenty years ago. The top firms competed with each other to recruit a too-small pool of talent from the top law schools. Unable to muster up even a mite of marketing insight, they chose to compete on only one axis: salary. So, 24 year olds were given jobs at $120,000 a year, when their peers from college were making 20% of that. The firms could have found great people at half the price, except that with only one axis, they had to be at the top if their peers were.

If you were a law student, the choice was easy. Either you got a job at a firm that proved its worth by paying a lot or you didn’t. You didn’t have to know anything about the firm, apparently, other than the fact that they were top tier, and the way you knew that was because they paid a lot.

Workers make choices about jobs based on a number of factors, with compensation being only one. Location, industry, function, challenge, work environment, relationship to the firm, the firm’s reputation, and the prestige of the position are all major factors that prospective employees consider. In Negotiation class we learn about distributive versus integrative negotiations. Distributive negotiations are the kind we usually think about: tugs-of-war in which any change in conditions will result in a win for one party and a loss for the other. Pure salary negotiation can only be distributive, assuming both parties like to have money. An integrative negotiation adds a third element: conditions that result in the improvement or worsening of the situation for both parties. A company’s location or a job’s responsibility level, for example, could play a role in an integrative negotiation, if what the company prefers is in the interests of the employee as well.

Wouldn’t we all be better off if companies pursued salary negotiations with executives in integrative rather than distributive fashion? Sure, they might get paid more if they went elsewhere, but they wouldn’t have the same experience. Call their bluff. They might have to endure a few more months of unemployment or stay in a job that they find unfulfilling. Or things might work out for them. But ultimately, don’t you want to avoid hired guns who are more interested achieving results for themselves than they are for your company? Don’t you want talented people working for you who want to be there? Don’t you want people who have an emotional or intellectual attachment to their work with you and want to make it as effective as possible? Isn’t that kind of a skill, really, that makes the employee more valuable?

I’ve been talking about these things in the context of the for-profit sector, but to my mind, they are just as if not more relevant in the nonprofit sector. A lot of people complain that compensation in the nonprofit sector is too low. In the aggregate, I agree (more on this in another post), but when it comes to executives, someone who would leave an organization over a few hundred thousand dollars that he doesn’t need is someone that probably doesn’t belong in the nonprofit sector anyway. Every incremental dollar that goes to an executive’s salary is another dollar that doesn’t get spent on programs that are the central focus of the nonprofit’s mission. Given the cash-starved state of most nonprofits, unless an organization can clearly justify that incremental expense over hiring a supposedly lesser candidate in terms of concrete outcomes for its constituents, its decision to pay that salary is both strategically and morally questionable in my view.

So how do we fix this situation? It’s a classic market failure scenario in which a suboptimal equilibrium has been reached because individual players perceive a strong disincentive to make the first move. If Bank of America takes a stand tomorrow and decides to pay all of its employees $100k or less, it probably will lose the best ones to other companies. But it doesn’t have to be this complicated, and that’s because of the third assumption I mentioned above. My advice to any reasonably-sized organization looking to get better bang for its executive compensation buck is this:

Hire from within.

Right now, most organizations recruit people from outside the company for executive positions—typically people who already have high-paying, high-profile jobs in their field. These people have all the leverage in a negotiation, because they can easily stay put in their attractive position where they know they can be successful. They will likely only leave for a big raise. By contrast, non-executive staff in the organization have no such alternative. They already know the organization and would have a shorter learning curve than a comparable candidate brought in from the outside. If the staff has benefited from professional or leadership development initiatives during their time at the organization, why let some other organization benefit from that investment? Consider this as well: the true capabilities of your organization’s staff are known much better internally than they are externally. This represents a competitive advantage: you have insider information on your own employees. Why not use it? Why go through the trouble of identifying outstanding candidates for junior positions if you’re not going to take advantage of their talents over the long term?

When we left off last time, I was advocating for funding agencies to adopt a spirit of experimentation in their philanthropic strategies for the arts. However, I haven’t yet talked explicitly about an idea that goes hand-in-hand with that strategy: diversifying grants across many different (and often smaller) organizations, instead of concentrating them in a few very large ones.

It’s not that I don’t think large arts organizations do good work, or that they don’t deserve to be supported. What I’m going to argue instead is that there is a tendency among many institutional givers to direct their resources toward organizations that have well-developed support infrastructure, long histories, and vast budgets, and in a lot of ways it’s a tendency that doesn’t make much sense (or at the very least, could use some balance).

For one thing, those well-developed support infrastructures don’t come cheap. Consider the case of Carnegie Hall, which due to union constraints (the subject of a current strike over on Broadway) routinely pays its top stagehands north of $300,000 a year. The astronomical salaries that symphony orchestra conductors make (up to $2.5 million annually; and that’s not counting guest conducting gigs with other ensembles) are being paid for by someone, after all. If those kinds of numbers seem a little insane to you, well, you’re not the only one. This is one of the dirty little secrets of the arts—very few people seem to be aware that their local orchestra conductor might be making bank on par with their favorite NFL players. And yet this information is all publicly available on government forms thanks to the incomparable Guidestar. (pdfs; registration required)

An important thing to note is that the forces driving these compensation figures into the stratosphere cannot be described as “nonprofit” in any meaningful way. The labor unions, for example, are not particularly interested in giving Carnegie Hall some sort of break because of their IRS status. From their perspective, this is the top gig in town and they should be remunerated accordingly. Similarly, the conductors and soloists extracting huge appearance fees from the major orchestras are being represented by for-profit management agencies such as IMG and Columbia Artists. Another large expense for many arts organizations is the rent for their office buildings that ultimately winds up in the hands of property-owning for-profit corporations. Foundations that are truly interested in “effectiveness” should ensure they are aware of the extent to which their charitable dollars may ultimately be making rich people richer.

Those are only perhaps the most egregious examples of money ending up where it may not be doing the most public good. The administrative overhead costs of maintaining such a budget can get quite high as well. The more money that needs to be raised for the organization to maintain a certain level of operation, the more fundraising staff need to be hired to support that activity. And, of course, since fundraising professionals know damn well that their services are in demand, they know to ask for a substantial salary from an organization that clearly has the resources to give them what they want. Which they then have to figure out how to pay for by raising yet more money. Do you see how this can become an upward spiraling process?

In contrast, small arts organizations are extraordinarily frugal with their resources, precisely because they have no resources to speak of. It’s frankly amazing to me what largely unheralded art galleries, musical ensembles, theater companies, dance troupes, and performance art collectives are able accomplish with essentially nothing but passion on their side. A $5,000 contribution that would barely get you into the sixth-highest donor category at Carnegie might radically transform the livelihood of an organization like this. Suddenly, they might be able to buy some time in the recording studio, or hire an accompanist for rehearsals, or redo that floor in the lobby, or even (gasp) PAY their artists! All of which previously had seemed inconceivable because of the poverty that these organizations grapple with. Foundations concerned with “impact” should remember that it’s far easier to have a measurable effect on an organization’s effectiveness when the amount of money provided is not dwarfed by the organization’s budget.

The best part of giving more money to smaller organizations is that it actually reduces the risk for the funding agency by diversifying its portfolio. Think about it like this: if you were investing stock in each of these companies instead of grant dollars, your broker would call you crazy to divide a million dollars among four of them rather than forty, or better yet four hundred. Sure, some of them will fail, but think about the missed opportunities with the ones that succeed. To only fund the largest organizations would be akin to confining one’s endowment investments to the blue chips on the NYSE while completely ignoring emerging markets.