Salary Sacrifices Are Donations. Let's Treat Them as Such.

I completely understand your point, but as a donor I have to say I'm considerably more likely to give when I feel that people in the organisation accept lower salaries because they genuinely believe in the cause. When I read, for example, that Marcus Abramovitch has donated 60% of his lifetime earnings and is now managing the Manifund Falcon fund without taking any salary, my immediate reaction was: this person is not in it for the money, and I trust him to make the most of my donation.

If you need to pay more to attract talent, that's fine but I don't think it's particularly effective to pay more than necessary just to match market salaries. 

That said, I do think a pledge should count as fulfilled if someone accepts a significantly below-market salary while working for a highly effective charity.

Thanks Christophe for sharing these thoughts. I would flip this discussion somewhat, as you note (and which I agree with). 

"I've recently talked with a charity founder: Their cost effectiveness was lower than that of their "competitor" because their competitor paid themselves a lower salary.  This is a race to the bottom that is unhealthy for the movement. The problem is, of course, that this can't be done by one charity alone. This would negatively impact their cost effectiveness when compared to others. ... Best thing to try probably is for large donors to start requiring this from their charities and thereby change the standard. For that the donors need to accept that their reported impact will go down."

The example you raise is a good one, but for me it points to an inefficiency in how donors measure effectiveness rather than in how organisations set salaries. Within a standard cost-effectiveness calculation, there's a direct incentive for organisations to underpay senior staff, particularly founders. For smaller organisations with budgets in the range of $300-500k, two co-founders paying themselves a living wage of $30-40k instead of a market rate of $80-100k generates savings of $80-140k. That's a reduction in total costs of roughly 25%, which inflates reported cost-effectiveness by a corresponding amount, entirely artificially.

This creates three real problems. First, it distorts comparisons between organisations at the early stage, potentially directing funding toward interventions that look cost-effective partly because their founders are financially sacrificing. Second, and relatedly, it penalises organisations that pay fair salaries, which is the race to the bottom you're describing. Thirdly, it can curtail individuals, who may otherwise have a great incentive in donating to other high-impact causes to actually do so. 

My view is that researchers conducting cost-effectiveness analyses have a role to play here: benchmarking standardised market rates for senior staff, independent of what individuals actually choose to pay themselves. This would remove the artificial incentive, give organisations flexibility to determine their own compensation, and allow any differential between market rate and actual salary to be treated as what it effectively is: a donation. The linked EA Forum piece makes this case well.

I recognise this is a longer-term structural shift and harder to move than individual donor preferences. But I think a lot of what you're describing is downstream of this measurement problem, and that's where the leverage is.

Their cost effectiveness was lower than that of their "competitor" because their competitor paid themselves a lower salary.  This is a race to the bottom that is unhealthy for the movement.

There are many EAs would would like to get a job at an EA org, and lower salaries means that more jobs can be offered. So I think EA "unemployment" is a bigger problem for the movement than the people who do have EAs jobs not making enough money.

1. It would attract talent that otherwise would've been inaccessible because that talent wouldn't have been willing to take as big of a sacrifice.

Yes, but I generally think there is talent available in the EA community.

2. It would allow less privileged groups to join the charity world that otherwise just wouldn't have the means to take paycuts like this.

Most salaries at EA orgs are in the top couple percent of the world, so I don't think this is a big issue.

3. It would give employees a tangible measure to estimate how much impact they are having with their job.

Most employees already know the market rate, so they can subtract. And I think most orgs do appreciate their employees for working for less than market rate. But I could see it helping with getting credit for GWWC.

A disadvantage of starting with market rate is that the person who would've accepted the NGO rate might on average pay themselves more because they would more consciously have to give up money. They means a combination of more donor money required and more EA "unemployment", which I think would reduce effectiveness overall.

It’s tricky too: the GWWC pledge only considers salary curtailments as donations if you manually and reversibly lower your salary and believe the charity is highly effective. In many non EAs organisations (say accepting a lower salary to work in key government organisations) that’s not an option.

I strongly agree.

Note that even the 'highly paid' COO position at CEA is arguably substantially below market rate. A COO in industry would likely get paid double or more.

The use of volunteers is a paradox I think about a lot. I volunteer for Sea Shepherd myself, I believe in the cause, and I wouldn't want to be paid for it, because then it would feel like just another job. When we go to an event to raise funds or sell merchandise, we generally come away feeling that we raised the money, which is in a sense true: the money wouldn't have been raised without us. So we feel that we saved the fish, and that's not entirely wrong either. Surveys consistently show that being personally asked is the most common reason people cite for donating, so I doubt many of those donations would have happened without us. And yet the donors also, quite rightly, feel that it was thanks to them. But the fish only got saved once. It would be nearly impossible to determine who should get credit for how many fish saved. So from a marketing perspective, I think the smart move is to let everyone feel like the hero.

In your thought experiment, I would donate to the charity that uses volunteers to create their content. I save the 1,000 hens either way. By giving to the volunteer-run charity, I also give meaning to the volunteers' work, and beyond that, volunteers who stay engaged will likely talk to friends and family, contributing to a broader shift in attitudes and hopefully bringing in additional donations.

But I also completely understand why you would give to the other charity.

A minor maths point but it will be important if you start running these calculations in real contexts.

"Maybe they took a paycut equal to EUR 100 for this life saved, then their "share" of this life in this case would be 100/3000 = 3%."

Actually, here the real cost of the life saved is 3100 EUR, not 3000. If it helps, you can imagine the employee being paid the competitive salary, then donating back the 100 EUR.

 

Thank you for the text and the interesting thoughts!

I don’t think charities will, or should, pay the same salaries as for-profits. They won’t do so because there are enough people willing to work for non-profits at lower salaries, and because all (EA) charities would effectively have to coordinate in order to pay salaries above the market rate for charity jobs. But they also should not do so, because that would actually reduce cost-effectiveness and therefore run counter to the purpose of charities.

Ideally, charities should structure salaries in whatever way maximizes cost-effectiveness. Suppose a charity needs to fill position X and could pay €100, €200, €300, or €400. At €100, nobody would take the job. At €200, the best candidate would create 100 units of impact. At €300, the best candidate would create 200 units of impact. At €400, there would be an employee who would create 210 units of impact. In that case, the charity should pay €300, regardless of what a comparable job would pay in the for-profit sector.

For-profits should actually follow the same principle as well, except that instead of impact, they optimize for contribution to company profit. If we assume that talented people are capable of contributing both to non-profit impact and to corporate profit, the question becomes: why are charity salaries lower on average? The answer is probably that people generally prefer working for charities.

In my view, there are several reasons for this. One important aspect is probably that many employees attribute the impact, at least partly, to themselves personally. Another aspect is certainly that working at a charity is often simply more enjoyable because you are surrounded by inspiring people, typically have more autonomy, and so on.

A similar dynamic exists in for-profit start-ups, which also tend to pay less than large established corporations, partly for those reasons. No start-up would say: “We’re going to pay as much as the big corporations.” Why shouldn’t a start-up make use of this advantage on the labor market? In my opinion, the same applies to charities.

Likewise, charities should also take advantage of the fact that they can pay less because employees attribute part of the impact to themselves, regardless of whether one thinks that attribution is justified or not. If someone believes that they will only get into heaven after death if they work for AMF, and is therefore willing to work for half the usual charity salary, then AMF should make use of that, for the benefit of the people whose lives can thereby be saved. (Of course, there are limits to this if the employee would suffer too much as a result.)

I also do not see the four stated advantages of for-profit-level salaries at charities:

“It would attract talent that otherwise would've been inaccessible because that talent wouldn't have been willing to take as big of a sacrifice.”
Under the method described above, charities can still pay high salaries if the output justifies it, thereby attracting very talented people. But if there are people who personally see no advantage in working in a charity environment, for example because they strongly prefer the clearly regulated structures of large corporations, and therefore demand higher salaries than equally talented people who are willing to work for less because they value the charity environment, then there is no need to attract those people specifically.

“It would allow less privileged groups to join the charity world that otherwise just wouldn't have the means to take pay cuts like this.”
The question here is how important reducing this social inequality is compared to the actual mission of a particular charity. Given that opening jobs to underprivileged groups comes with increased costs for the charity, one has to ask whether this is really the most cost-effective use of donated money. More generally, I think the focus should be on ensuring that everyone has enough money, rather than increasing salaries for selected positions within the charity sector.

“It would give employees a tangible measure to estimate how much impact they are having with their job.”
In my opinion, voluntary salary cuts can always in some sense be viewed as donations, and therefore as a measure of impact, regardless of whether the baseline salary corresponds to for-profit or non-profit market rates. Whether those donations are the only contribution to impact is a separate question, but that question arises in both cases anyway.

“It would avoid discussions like here whenever NGOs decide to pay market-rate salaries.”
First of all, I would not say that for-profits pay “market-rate salaries” while charities do not. There are simply two different labor markets: one for for-profits and one for charities. More generally, I think discussions about salaries are good. So from my perspective, avoiding such discussions is not an advantage.

I'd argue that if they would pay their employees a competitive for-profit salary in this case, the employee's share of the input is 0. Maybe they aren't motivated by impact, that's why they took the full salary. They just "do their job" and produce value for their employer.

I’d push back on this. Maybe the career choice (decision to do the job at the given market rate instead of doing something else) of N employees on the market allows achieving the current total production at $2X total cost instead of, say $3X, if it was fully up to the market. (The decisions shifting the supply curve upwards so the market can buy more production at a given price)

In that case, the total funding required is $X less, so on average $X/N for each impact focused employee. For comparison, if the market consists of, say, another N impact agnostic employees (2N employees total), then the individual market rate salary was also $X/N. (Average funding need reduction comparable to the market salary.)

Now, the above numbers are obviously arbitrary, but I think this illustrates the effect that I (we?) hope to have from direct work.