Factoring in compensation

Among her many talents, Tara McMullen-King is the go-to person on our team for compensation information and training. She’s the one who keeps a running list of salary resources and shares them with the team (and you!) when she finds them. It’s not just resources that are important, though: taking a moment to sit and think about what you’re looking at is also a solid piece of advice from Tara today. ~Helen

---

Determining what a prospect earns can sometimes be a tough task – but in my opinion, researching a prospect’s compensation is a crucial step in conducting the proper amount of prospect research to provide an accurate understanding of their financial resources and potential gift capacity.

Not all prospects you will be called on to research will have the kind of assets that are readily evident – like executives at the tiptop of public companies, people who own vast portfolios of real estate holdings, or those who are esteemed enough to appear on published wealth lists. In many cases, your prospect pool may be chock full of individuals whose wealth is just not as easily identifiable.

Many nonprofit organizations choose to invest in wealth screenings, which aggregate publicly available data and use that data to assess an estimated capacity rating. But even though wealth screenings can be extremely useful and add significant value to your prospect development program, they really only match to publicly-available wealth data – such as real estate holdings or insider stock. They don’t often yield much – if any – actionable insight into salaries or compensation for prospects who aren’t involved with public companies…

But in most cases, a prospect’s wealth earned through their occupation is going to be the source of any significant philanthropic gift they make. So some of your prospects – who might be earning considerable income and have liquid assets to support your organization at a significant level – would fly beneath the screening radar, as specific information pertaining to their income is private and not easily quantifiable without additional research.

Given all this, it may be worth spending a bit of time carefully considering a prospect’s income (estimated, actual, or demographic) with the idea that it could yield insight into how much of that might be disposable and available for a gift.

Throughout my years in the prospect research field, working with different organizations, I have personally seen a variety of different formulas used to calculate estimated capacity ratings. One of the most well-known (and widely-used) formulas calculates a prospect’s capacity at 5% of identified assets, indicating their total giving ability typically spread over a 5 year period.

However, I have also seen other rating formulas used that are based on the national average of charitable giving as a percentage of income. According to Giving USA, the average American contributes 2% of their income per year to charity, with reports indicating that this increases substantially for those of higher income and wealth levels (sometimes upwards of 5% – 10%). Given that, a rating methodology that specifically considers income could be used in order to yield a more customized gift capacity rating for some prospects.

For example, I have seen the following formula implemented to calculate major gift capacity ratings:

Major Gift Capacity = 10% of annual household income (equating to 2% per year x 5 years for a multi-year pledge)

I have also seen ratings customized by factoring in a prospect’s household income, applying a multiplier of 1% – 5% to their total identified assets or total estimated wealth:

• Income of <$250,000: multiply by 1%
• Income of $250,000 – $499,999: multiply by 2%
• Income of $500,000 – $999,999: multiply by 3%
• Income of $1,000,000 – $4,999,999: multiply by 4%
• Income of $5,000,000+: multiply by 5%

Although I am not instructing you to use either of these formulas, they are two examples to consider for how income can sometimes be used as a piece of an organization’s rating methodology!

RESOURCES

So if you do want to spend more time researching income and compensation for some of your prospects, what resources might you use to do that? And what factors might you want to consider when conducting your research and doing your assessment?

If you are researching one of those top executives at a public company who have their compensation packages reported on the company’s annual proxy statement, your research is going to be a lot more straight-forward!

However, it is likely that only a small percentage of the prospects in your organization’s pool fall into that bucket, so you may have to work a bit harder and do a bit more digging… but in my opinion, the extra effort can be worth it.

Some sources of information on salaries and compensation:

• For some professions, you may be lucky enough to find some specific and comprehensive reports, such as real estate compensation surveys from CEL & Associates, articles on compensation within the finance industry published by Mergers & Inquisitions or Heidrick & Struggles, or guides published by Robert Half that cover salaries across multiple industries.
• It can also be immensely helpful to perform general web searches to try to uncover news articles or other resources that contain useful information on salaries within a given field. For example, many periodicals often publish general articles on salaries within specific industries. Some examples: this article on salaries across large U.S. tech companies, this article discussing salaries in Hollywood, this article that discusses how authors get paid, or this article on last year’s bonus season on Wall Street.
• If you can’t find industry-specific resources, you can consult more general salary and compensation websites and aggregators, such as Salary.com, Glassdoor, or even the U.S. Bureau of Labor Statistics’s repository of wage data by occupation and area and Occupational Outlook Handbook.
• You can also check out the Helen Brown Group’s collection of salary and compensation links, part of our larger Prospect Research Links Library!

BRING YOUR CRITICAL THINKING SKILLS

However, income research isn’t just the act of acquiring the right salary survey or article and then using some number listed there without a more critical assessment and analysis of the prospect’s compensation. When researching salaries and compensation, here are some additional questions to consider:

• Would the prospect’s income naturally be considered steady, or might it fluctuate?
• Many figures you will find through salary aggregators and industry compensation lists are averages… so what are some factors that might influence a particular prospect’s specific compensation? You might want to consider their job role and responsibilities, tenure in their position, length of their career, scope of their experience, education, company size and revenue, and the geographic area in which the business is located.
• Has their industry been adversely affected by recent domestic or worldwide events or the overall state of the economy – and if so, might this affect their compensation?
• Do they receive a base salary? Bonuses? Other forms of compensation?
• Do they work in an industry (such as real estate) where professionals are paid based on the success of a deal or project?
• Do they own and operate their own business, or do they work for someone else?
• Are they employed in a field where they might earn income from other sources, like consulting, teaching, expert witness testimonies, product endorsements, their own product lines, or even royalty income? Even if you can’t place concrete numbers on these other streams of income, they are still worth taking into consideration as pieces of the prospect’s overall compensation and wealth picture.
• Are they retired? Financial planners often estimate that people will need to be able to replace 70-80% of their pre-retirement income when they retire (although household expenditures also typically decline later in life) – for the purpose of estimating retirement income, it is sometimes suggested to assume a minimum of 60% of the prospect’s last known or estimated salary.
• And finally – does their spouse or domestic partner also work? If so, what do they do? Don’t forget about them – it can be useful to consider the entire household!

ONE FINAL TIP

Why not start a spreadsheet with links to compensation resources, as well as compensation figures you find for various careers and positions? You could even have separate tabs for different industries of interest, and could have it function as a collaborative archive, shared amongst your internal research colleagues. How great a resource that would be!

In summation – I truly believe that while compensation research usually requires a bit of extra effort – and some creative thinking and thoughtful analysis – it is usually well worth the time spent.