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Big Salaries. Low Marketplace Impact. Why NGOs shouldn’t pay more in Haiti.

Anthony DeMattee is the Chief Strategy Officer for an international nonprofit.  Before joining the social sector he worked for the City of Chicago and Morgan Stanley Smith Barney.  Anthony earned an MBA from the Kellogg School of Management, Northwestern University graduating with six majors and president of his student body.  He spent 2011 in Haiti helping various nonprofits, which led to self-funded academic research of the Haitian labor market.

While in Haiti I was asked to assist a nonprofit with its salary practices. Such a task is simultaneously simple and difficult:  on one hand it is easy to compare expected contribution from each employee to actual wages paid and analyze whether the salary differences mirror the productivity differences. On the other hand, assuring an organization that its salary practices are fair does not imply it is paying a fair market wage.  Without full and symmetric information an organization cannot assure itself of the soundness of its salary practices.  Compounding the complexity of the issue was the rumor:  “[In Haiti] nonprofits pay higher wages for a particular position than for-profit businesses.”  If true, this practice is immediate irresponsible behavior by management and a long-term hurdle for the Haitian economy.

Empirical research performed on data of 876 observations from 79 employers supports the claim nonprofits pay higher wages than other organizational structure types.  The research shows nonprofits pay 39% more than “Other”, 43% more than “For-Profit”, and 75% more than “Religious” organizations.  These and other statistically significant salary drivers are available online in the form of an interactive salary calculator, a white paper, and an executive summary. Below are some key issues and recommendations that came out of the research.

Why better funded organizations should(n’t) pay more for the same? 

If Bill Gates and I wanted to buy the exact same car would it make sense for him to pay more than I?  Absolutely not.  Airplane tickets, value meals, flat-screens have the same price regardless of one’s financial situation.  It’s true that higher wages give employees more disposable income to spend in the local economy; however, organizations have no assurance that employees will not spend excess income on vacations to Disney World (such expenditures help Mickey Mouse but not Haiti’s President “Sweet Micky”).  In a country with 60% employment it makes more sense for nonprofits to pay employees a fair market wage and spend the savings on additional personnel or programming.

Headwind for business

Haiti, a country of 10 million people, has a diaspora of 2-4 million. The diaspora, generally speaking, represents a brain drain of the most skilled Haitians and leaves less talented second-, third-, and fourth-tier employees in country.  By offering significantly higher wages, nonprofits “poach” the most talented of the remaining workers (i.e. the second-tier), which means the private sector can only employ the lesser talented third- and fourth-tier workers to strategically run and sustainably grow businesses.  If this practice continues Haiti’s economic independence will be delayed and may be prevented.

Obsolescence Strategy

Nonprofits should operate with a dual mandate.  First, they should provide immediate value by fulfilling their mission and participating in capacity- and economy-building initiatives such as hiring and training employees and sourcing products and services locally.  Second, nonprofits should work to make the country self-sufficient, which may concurrently make some nonprofits obsolete.  A nonprofit that trains teachers should do so in a way that allows trained teachers to train the next generation of teachers…and so on in a sustainable manner.  As a donor to nonprofits I hope that they care so much about their mission as to work themselves out of a job.  But therein lies a misalignment of incentives, which is a conversation for another day.

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