Addressing Racial Gaps in the Social Sector with Pay Transparency
By: Maya Goodwin
Key takeaways:
1. Over the last year, the philanthropic community has increasingly reflected on the ways that bias and norms in philanthropic giving lead to systemic levels of racial funding disparities. This reflection has included a deeper look at approaches that funders can adopt towards ending the sector’s contribution to racial economic disparities.
2. One tactic worth pursuing is to accelerate pay transparency. Philanthropy has numerous levers at its disposal to catalyze pay transparency across the sector.
3. Pay transparency practices are logically a powerful tool to combat bias that leads to racial wage gaps within organizations.
4. Taking pay out of secrecy could also help to close disparities in funding. With similarities to how transparency closes gender wage gaps within organizations, pay transparency across a sector makes it more difficult for funders to ignore racial funding gaps, expands access to valuable information that shapes how much funding social sector leaders seek, and combats biases that may show up in funding negotiations.
A deeper look at how philanthropic norms and practices reproduce racial economic disparities
Over the last year, the philanthropic community has taken a deeper, more honest look at the influence of race in determining the work that ends up being elevated by philanthropic dollars. One impetus for this overdue reflection was the unforgettable findings from research by Echoing Green and the Bridgespan Group that examined how race affects funding flows in the social sector. The groups found that among some of the most promising emerging social innovation projects, Black-led organizations had 24% smaller average revenues and 76% smaller unrestricted net assets than comparable white-led organizations. Unrestricted net assets (revenue that is not earmarked to activities) is particularly important to supporting impact, as flexible funding allows for innovation and pivoting as opportunities arise. Even when comparing organizations that focus on the same issue of improving life outcomes of Black men and boys, Black-led organizations had 45% smaller revenue and 91% smaller unrestricted net assets than white-led organizations.
Striking racial disparities in philanthropic funding have been a persistent issue, even as so much of the sector’s objectives relate to undoing the harms of systemic racism. Others have estimated that between 2010 and 2014, only 11% of philanthropic dollars directed at “big bet” social change initiatives were received by people of color-led organizations.
In explaining these systemic gaps, Echoing Green and the Bridgespan Group identified numerous barriers that disadvantage POC-led organizations in fundraising, such as less access to funders through social networks, bias that inhibits relationship building, limited views on the strategies worth betting on as well as conventions around evaluation methods needed to document impact. In calling attention to the same problem, Vanessa Daniel, of the Groundswell Fund, highlighted similar biases that so often show up in philanthropic giving. These include favoring trickle-down approaches to social change, connections to prestigious institutions, facility in academic English and presentation materials with a certain appearance. For funders to close disparities and disrupt these biases, some of the most noted approaches include:
· Prioritize proximity to learn from and partner with communities closest to the target challenges.
· Diversify the funder’s applicant sourcing pool.
· Expand the range of organizations that are considered for big bet investments.
· Proactively listen and learn about implicit bias.
An overlooked reform: accelerate the adoption of pay transparency
Alongside these approaches, funders should consider accelerating pay transparency practices across the social sector.
Pay transparency is when compensation (both pay and benefits) are no longer kept confidential. This can be as simple as sharing the salary bands for each role in an organization, or as detailed as a person-by-person database showing the salary and benefits for every individual (as done by many state and local governments today).
This organizational practice is a strategy to combat racial and gender compensation gaps within organizations.[1] The logic is that exposing compensation makes it harder for firms to hide or ignore gaps that arise from implicit bias. Research on the impact of pay transparency has primarily focused on gender wage disparities, but the results are impressive. A study from PayScale found that among women at organizations where pay was transparent, the gender wage gap completely disappeared.[2] In contrast, for organizations without transparent compensation, women earned on average 4% less than men in the same roles. At the Director level, the gendered wage gap was even more pronounced at 9%. While these wins concern gender disparities, making pay less of a secret is a practice that would most likely help to close racial wage gaps within organizations.
Pay transparency across the sector could help to reduce funding disparities
Beyond shrinking wage gaps, pay transparency should be seen as another tool to disrupt the bias-driven processes and norms that facilitate racial disparities in philanthropic funding. Why?
How much people are paid is a major factor in shaping philanthropic funding awards.
Of course, there are many factors shaping total grant awards, including number of staff, length of project, activity, and geographic location of the intervention, etc. But regardless of those differences, pay transparency is a tool that would boost the leverage POC have in pursuing larger funding awards for the same work they are already doing. Pay transparency across grantees working on similar problems makes it harder to ignore bias-driven funding gaps, and makes it easier for POC-led organizations to negotiate for less disparate funding.
A contributing factor for funding disparities is that there is a degree of secrecy on what different organizations ask for and receive for similar work. Consider the observation made by Christopher Chatmon, chief executive of Kingmakers of Oakland, an organization working to improve the educational outcomes and well-being of young Black students. When Kingmakers began receiving support from a venture fund that backs public school innovation, Chatmon notes he “realized white leaders would ask for far more without the same amount of experience…Folks of color, we would ask for far less even though we had a proven track record.”
In the absence of critical information (both funding award levels and the compensation that the awards support), it is not guaranteed that POC-led organizations can easily land funding awards that would match that of similar white-led organizations through negotiation. In an analogous scenario of negotiating for a higher starting salary, we know from randomized experiments that Black people face greater penalties and are perceived as pushier than white counterparts, even when negotiating at roughly the same amounts. This bias leads to the Black job candidates being offered lower starting salaries on average. Pay transparency makes it harder to ignore the these gaps and as result, there may be less penalties when negotiating for fair funding awards.
Philanthropic organizations can act to spur pay transparency practices within the social sector
Philanthropic entities—whether grassroots or large national foundations, philanthropic arms of corporations, or philanthropic individuals—can advance pay transparency practices in several ways. The goal is to make pay transparency more common across the sector, both with organizations (directly impacting wage gaps), and at a public level in the form of making information accessible across the sector (impacting funding disparities):
1. Start by modeling pay transparency practices within the philanthropic organization. Then encourage, the adoption of internal pay transparency among all organizations that receive funding.
2. Encourage adoption of public pay compensation disclosure among grantees and vendors, even if anonymized. One way to do this is by making pay transparency practices an explicit encouragement of the grantmaking process. Consider giving more weight to organizations with pay transparency practices in review processes.
3. Go further by requiring grantees and vendors to disclose compensation of all staff and contract sizes that work on a project in grant applications. The funder could then host a database of the anonymized compensation levels, made available to prospective grantees.
4. Commit to funding initiatives that work on amplifying strategies to close disparities in funding and towards investing in nonprofit leaders of color, like the Power Fund, Echoing Green’s Racial Equity Philanthropic Fund, and the Groundswell Fund.
5. Fund research to document how pay transparency affects racial wage gaps.
6. Require grantees to have all contractors and staff paid at least a living wage.
Other social sector stakeholders that are not in funding positions can adopt such practices in their organizations, too. Another necessary reform is for funders to release information on total funding awards—who is getting funding, how much and for what activities—if they are not doing so already.
Pay transparency works in several ways to disrupt biases and norms contributing to racial funding disparities
Pay transparency does not address disparities in access to funders through social networks, nor would it eliminate bias that leads to skepticism of less familiar interventions. Some of the sector’s compensation is already available, but with significant limitations.[3] And like any change to status quo processes, these changes may incur cost, push-back, and unforeseen challenges. Firms should anticipate that implementing pay transparency internally may require more money to close gaps.
Fundamentally, pay transparency combats bias that permeates grantmaking processes and gives non-white leaders critical information to negotiate for fairer funding awards. Plus, it makes it harder for funders to ignore root causes of funding disparities. Given the power and strength of the philanthropic community to influence the social sector, there is an opportunity and an imperative to lead on approaches to close racial compensation and funding disparities.
[1] As added bonuses, pay transparency leads to more productive, collaborative workers and makes them likelier to ask for help from the appropriate colleagues when they know how much their colleagues earn.
[2] In other cases, pay transparency does not fully close gender wage gaps, because there are other factors to pay levels that can disadvantage certain demographics, such as tenure.
[3] Some social sector compensation is publicly available. Sites like Glassdoor and Indeed display crowdsourced data on compensation at individual firms, but this is limited and not necessarily accurate. There is also a compensation report aggregating top pay for 501(c)(3)s by budget size released by GuideStar.
Most notably, there is publicly available nonprofit compensation through US Tax Form 990, which require nonprofits to disclose the top 5 highest paid employees, as well as officers, directors, trustees, and key employees. This data is not as extensive as would be ideal. For one, many large, well-funded nonprofits have senior staff that would not be included in these disclosures, even though these staff lead initiatives comparable to stand alone nonprofits. Additionally, philanthropic circles do not only fund 501(c)(3)s, and thus Form 990s include information on just a segment of the social sector. Kinetic West is a limited liability corporation that operates in the social sector but does not have Form 990s. Form 990s are also not as powerful as having data that allows for direct comparison within a social sector issue area or among a funder’s grantees.