Nonprofits often rely on fundraisers and grant professionals to secure donations and grants, but how they are compensated is a critical ethical and legal issue. While it may seem practical to pay fundraisers a percentage of what they raise, this practice is widely discouraged and considered unethical by leading nonprofit organizations.
Why Is Commission-Based Fundraising a Problem?
The Association of Fundraising Professionals (AFP) and other professional fundraising organizations strongly oppose paying fundraisers or grant professionals on a percentage or commission basis. Here’s why:
Ethical Concerns – Fundraising should be about advancing the mission of the nonprofit, not personal financial gain. When fundraisers are paid a percentage of funds raised, it creates a potential conflict of interest.
Donor Trust Issues – Donors give because they believe in the mission, not to pay a fundraiser’s commission. If donors learn that a portion of their gift is being used to compensate a fundraiser based on a percentage, they may lose trust in the organization.
Legal & Compliance Risks – Some states prohibit or restrict commission-based fundraising because it can be seen as improper financial management. Additionally, IRS guidelines emphasize that nonprofits must ensure reasonable and appropriate compensation.
Focus on Short-Term Gains Over Long-Term Relationships – Commission-based pay can encourage high-pressure tactics and quick fundraising wins instead of sustainable, long-term donor relationships.
How Should Nonprofits Compensate Fundraisers & Grant Professionals?
Salary or Hourly Pay – The best practice is to pay fundraisers and grant professionals a reasonable salary or hourly rate, based on experience, skills, and industry standards.
Performance-Based Bonuses (Ethically Structured) – If you want to incentivize fundraising performance, consider ethical performance bonuses tied to factors like donor retention, engagement, and meeting fundraising goals—not a percentage of funds raised.
Retainer or Project-Based Fees – For contract fundraisers and grant writers, flat fees or monthly retainers are appropriate and ethical ways to structure compensation.
Transparency & IRS Compliance – Nonprofit compensation must be reasonable and aligned with IRS guidelines to avoid any risk of excessive pay that could jeopardize tax-exempt status.
Bottom Line: Avoid Commission-Based Fundraising
While nonprofits always need funding, commission-based pay for fundraisers and grant professionals is widely considered unethical and can damage donor trust, create compliance risks, and undermine long-term sustainability. Instead, follow best practices by offering fair, ethical compensation that prioritizes the mission and long-term donor relationships over short-term gains.
For additional guidance on nonprofit best practices and compliance, InstantNonprofit is here to help!