Comments
Strong upvote for writing something sensible, research-based and easy to read on an important topic.
Note: Views mine, not my employer’s. Thanks to David Reinstein, Peter Hurford, and others who provided helpful feedback; any errors are mine alone.
Summary
Since 2015, the EA community has increasingly discussed talent constraints. That discussion generally hasn’t taken place in the language often used to discuss labor markets, that of labor economics. I argue that standard frameworks like labor supply and demand models can provide considerable insight into why EA organizations and the broader EA community experience shortages (and surpluses) of various skills and how to resolve these imbalances.
Through an economics lens, organizations that offer non-competitive compensation should generally expect to find it hard to hire the best candidates. It’s well known that the nonprofit sector as a whole pays significantly less than the for-profit sector, but there isn’t much hard data about how compensation at EA organizations compares to what different types of candidates could alternatively earn. I propose surveying EA organizations to get actionable information about their competitiveness, and using that data to guide future decisions.
Defining Talent Constraints
When we talk about “talent constraints” in EA, what do we mean by the term?
80K has offered a working definition of “talent constrained”:
“An organization is talent constrained when, for someone who could take (a reasonably important) job at that organization, they would typically contribute more to that organization by taking the job than earning to give.”
They go on to note that this definition is imprecise and somewhat problematic:
“While we think this framing can sometimes be useful, it also has some problems. For example, this definition seems less useful when an organization’s best potential hires don’t have very high earning potential and wouldn’t be very good funders.”
This imprecision has the potential to create ambiguity and confusion. I propose an alternative definition:
An organization is talent constrained when it doesn’t have (and/or can’t hire reasonably easily) the people it needs despite offering competitive compensation.
This definition (which I’ll use for the remainder of this post) may not be perfect[1], but it has the advantages of being simple and applicable across organizations, causes, roles, and geographies. Perhaps most importantly, it’s an intuitive definition: if someone hears the term “talent constrained” it will likely conjure up images of an organization that doesn’t have the talent it needs, rather than an organization where (some) potential supporters would be more valuable as employees than donors.
The definition also works in describing more specific skill gaps if one simply states explicitly which skills one is referring to. In general, I suggest people follow 80K’s advice regarding specificity: “It’s nearly always clearer to talk about the specific needs... ideally down to the level of specific profiles of people, rather than talent... in general.”[2]
The importance of competitive compensation
Through the lens of labor economics, which “looks at the suppliers of labor services (workers) and the demanders of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income”, a talent constrained organization should consider raising salaries.[3] When wages are structurally suppressed, through mechanisms like wage ceilings that limit how much people are paid, labor shortages generally result.
It’s widely understood that the nonprofit sector pays significantly less overall than the for-profit sector, and “much of the literature on pay in nonprofits” addresses this discrepancy. This means that nonprofits routinely lose out on the talent they need because their salaries can’t compete with for-profit firms, as Dan Pallotta argued in his 2013 TED Talk:
“The median compensation for a Stanford MBA, with bonus, at the age of 38, was 400,000 dollars. Meanwhile, for the same year, the average salary for the CEO of a $5 million-plus medical charity in the U.S. was 232,000 dollars, and for a hunger charity, 84,000 dollars. Now, there's no way you're going to get a lot of people with $400,000 talent to make a $316,000 sacrifice every year to become the CEO of a hunger charity.”
Exacerbating the problem, while for-profit companies routinely reward the employees who have the largest impact on the bottom line, nonprofit compensation rarely incentivizes employees to achieve more social impact. An analysis of the financial records of over 27,000 US nonprofits found “the pay of nonprofit chief executive officers (CEOs) is strongly predicated on what managers in similar-sized organizations receive... [and] that nonprofit executive compensation is only modestly affected by CEO performance, as measured either by improved fund-raising results or better administrative efficiency.” These dynamics suggests there could be a large pool of talented workers who would be willing to work in the nonprofit sector if the compensation weren’t so low and so misaligned with performance.
Turning to an example from the EA community (where I suspect organizations generally pay less than what comparable nonprofits do)[4], The Centre for Effective Altruism is hiring a new CEO. Should it restrict its search to candidates willing to show their commitment by pledging everything they earn above a modest amount to effective charities? (Purely hypothetical question, I have no reason to think CEA is doing this).
That approach would definitely produce mission aligned candidates. But I think it would be foolish given the extraordinary importance of getting the best possible person in that high-leverage position. What if that person won’t (or can’t) make the kind of sacrifice Pallotta describes? Is it worth losing out on the enormous incremental impact the person could produce?
How competitive are EA organizations?
To gauge whether an EA organization is competitive or not, we can benchmark its salaries against what candidates could earn on the open market, at other nonprofits, or at other EA organizations. These comparisons help define a candidate’s opportunity cost (i.e. what they would forgo by working in the EA ecosystem instead of pursuing other opportunities). And, as the following simplified flowchart shows, they can also help define why talent constraints exist and what can be done about them. (If you’re not sure how to follow the flow chart, there is a guided example in this footnote).[5]
EA labor market supply
Increasing compensation can often help attract talent.[6] But I believe many EAs are resistant to raising salaries as a way to close talent gaps because they conflate willingness to work for low pay with fit for a job. One respondent to the 2017 EA Leaders Survey was explicit about this: “Raising salaries… is unlikely to be very helpful for attracting top talent since the most suitable candidates are also the most altruistic ones.”
While the “most altruistic” candidates might be the “most suitable” all else being equal, for practical purposes all else is never equal. As Holden Karnofsky observed about GiveWell’s experience, “it’s certainly the case that some people require substantially more pay than others (based on different career stages, etc.) even when they buy heavily into the mission.” In other words, willingness to work for below market rate is a poor proxy for both a candidate’s altruism and their job fit.
Talent constraints get exacerbated when we (in Pallotta’s words) “confuse morality with frugality”. Labor supply curves shift inward, reducing the quantity of labor supplied, when candidates have relatively higher earning power in other industries and when barriers to entry are in place (like cultural expectations of deeply discounted wage scales).[7]
Lower salaries don’t just reduce the overall supply of labor, they also skew which types of candidates end up working, or not working, in EA roles. EA leaders who were surveyed about talent in 2018 think the community’s biggest skill gaps are in areas that require significant experience like expertise in government, policy, or AI, or skills in operations or management. These labor shortages are in sharp contrast to the job market for EA roles that require less experience, where even highly credentialed and mission aligned young candidates are finding that it is really really hard to get hired by an EA organization.
The EA community’s youthful demographics no doubt explain much of this discrepancy, and related factors like network and founder effects likely play significant roles as well. These issues make it all the more important that EA organizations reconsider other practices like low salaries that exacerbate these imbalances.[8]
Low salaries make it relatively harder to find experienced candidates than inexperienced ones because of several factors that shift the labor supply curves on a relative basis:
● Earning power in alternative jobs. Experienced candidates generally have better paying alternatives than their inexperienced counterparts (i.e. they have higher opportunity costs). Experienced candidates will often be sacrificing hundreds of thousands of dollars or more to work for an EA organization; that would be very rare for junior candidates.
● Barriers to entry: Experienced candidates are more likely to have dependents and mortgages, and for them working at an EA organization is more likely to involve a psychologically difficult large pay cut. Inexperienced candidates, on the other hand, may see working in EA as the path of least resistance.
● Non-monetary compensation. As Milan Griffes has argued, EA jobs provide scarce non-monetary goods like “social status, life-orientation, a sense of having near-maximal impact, and being part of a value-aligned, elite tribe.” Younger candidates likely perceive more value from these particular factors. (More experienced candidates, by contrast, would likely perceive relatively more value on non-monetary compensation in the form of flexible working hours or paid parental leave).
Learning more about EA’s talent gaps and how to solve them
As 80K puts it, “Skill bottlenecks are a matter of degree” and these degrees can vary significantly depending on the specific skills in question. But we have little hard data to quantify skill gaps across various areas.
I suggest adding new questions to the next talent survey of EA organizations to help capture some of these nuances.[9] These questions will hopefully make it easier to answer questions like: Are EA organizations talent constrained? If so, which sorts of organizations and which sorts of talent? How large are these constraints? What can be done about them?
New questions (which should continue past surveys’ practice of asking the same questions about both a junior and senior hire and anonymizing organizational responses due to the sensitivity of the information involved):
● Generally speaking, how easy/difficult do you currently find it to fill roles at your organization? (Scale of 1 = Very difficult to 5 = Very easy)
● What do you pay current employees relative to what they could earn on open market, including jobs in the for-profit sector? (Multiple choice: More; about the same; 0-10% less; 11-20% less, etc)
● What do you pay current employees relative to what they could otherwise earn in the nonprofit sector (including all nonprofits not just EA organizations)? (Multiple choice: More; about the same; 0-10% less; 11-20% less, etc)
● What do you pay current employees relative to what they could otherwise earn at another EA organization? (Multiple choice: More; about the same; 0-10% less; 11-20% less, etc)
● How much do you plan to offer future hires relative to current employees in similar roles? (Multiple choice: More; Less; About the same. If someone answers “more”: Do you plan to increase salaries for existing employees? What factors into this decision?[10]
● Would any of the following steps be helpful in closing your organization’s talent gaps? (Rate the following options on a Scale of 1 =Not at all helpful to 5 = Extremely helpful):
○ Increasing salaries
○ Investing in recruiting
○ Increased publicity of position
○ Better access to interested candidates
○ Other (please describe)
This information is relatively easy to collect and interpret, corresponds to a real-world decision organizations make (how much to pay), is grounded in observable data (market wages), and is comparable across roles, organizations, geographies, and causes.[11] To mitigate the cost of data collection, I suggest abandoning survey questions about non-traditional labor metrics that seem to be producing noisy data and to generally be causing confusion.[12] If we collect compensation data and respondents indicate which types of roles they’re thinking about as junior and senior (which will vary across organizations), we’ll have a rich and actionable picture how EA compensation stacks up to the competition for various types of skills.
Conclusion
My hunch is that for the most part talent constraints are, and will continue to be, common among EA organizations. The world’s biggest problems require significant and diverse talent, especially as existing organizations continue to grow and new ones emerge. And if EA organizations offer compensation that is as non-competitive as most nonprofits, they should expect chronic struggles attracting the candidates they need (most notably in roles requiring specialized expertise).
To solve this problem, I think EA organizations need to approach compensation in a way that’s oriented around impact rather than convention, even if it sometimes means paying more than most nonprofits would for a role. I suspect it would be very helpful to strategically and opportunistically increase compensation to try to tap a vein of skilled candidates that are willing to work in the nonprofit sector for a discount, but not as big a discount as most nonprofits might expect. [13] This might require a shift in mindset from viewing talent gaps and funding gaps as oppositional to seeing the latter as a frequent cause of the former.[14] Increasing compensation won’t be a cure all (for an excellent overview of why there can sometimes be practical difficulties in trading money for capacity, see GiveWell’s 2013 blog post We can’t (simply) buy capacity), but my hunch is it would be a helpful first step.
However, there’s no need for the EA community to rely on my intuition or anyone else’s when there’s hard data we can use to guide our decisions. I propose surveying EA employers to see how they pay relative to the nonprofits and for-profits they compete with for talent. This would radically improve our understanding of how much talent EA organizations want at different price levels; in economics terms, we’d be learning what the labor demand curve looks like. I also enthusiastically support proposals to use the EA survey to learn more about EA job seekers, which would improve our understanding of the corresponding labor supply curve.
If we think about the EA labor market in terms of labor supply and demand, we’ll be able to leverage the efforts of many very smart people who have already thought about a lot of the issues we care about.[15] They can help us make informed decisions about crucial questions that will ultimately shape much of the EA labor market: How much should EA organizations compete with the for-profit sector for top talent? How can they fund the talent they need (and other operational expenses)? And if they can’t or won’t become more competitive with for-profit firms, how do EA organizations expect to find the talent they need to achieve their ambitious goals?
I welcome thoughts on how to better calibrate and operationalize “can’t hire reasonably easily” in the most meaningful way and/or ideas for alternative definitions. ↩︎
While I disagree with 80K’s definition of talent constraints and some of their other thinking on the issue, I want to emphasize that this constitutes a very minor critique. 80K has done an excellent job drawing attention to the importance of the EA labor market, and has helped a lot of people achieve much more impact with their human capital than they otherwise would. 80K also deserves applause for recognizing that some of its content was causing confusion and publishing a clarification on their thinking (which includes the definition I’ve quoted). ↩︎
Disclaimer: I’m not an economist. I majored in economics in college and was a research assistant for a few professors, though that was nearly two decades ago. I was admittedly fuzzy on some details so I watched a few refresher videos. I highly recommend EconplusDal’s videos (which have millions of views) and have tried to lean on his expertise where possible. For instance, when I discuss factors that drive shifts in the labor supply curve, the factors I discuss are ones he emphasizes in his video on the topic. I also got very helpful feedback from an economist on an early draft. ↩︎
This was almost certainly true in 2015 when EA organizations paid less and talent gaps first started being talked about. ↩︎
Starting in the upper left hand corner, the first question to ask is whether pay is competitive vs. the for-profit sector. If so, follow the “Yes” arrow to arrive at a diagnosis of a recruiting problem that suggests a need to invest more in recruiting. If that suggestion worked (“it worked”), the talent constraint is resolved. If “it didn’t work”, then the suggestion is to try investing even more in recruiting. If there’s no money available, we follow the “need $” arrow to arrive at a new diagnosis of a funding problem. ↩︎
80K’s most recent advice on this issue is: “In general, if an organization thinks that it’s constrained by a particular role, we think they should seriously consider raising salaries for that role. However, we don’t think this will fully solve the problem, and it isn’t always the right thing to do.” ↩︎
To be clear, the literature on nonprofit compensation includes significant discussion of how the “morality vs. frugality tradeoff” impacts labor supply under different conditions. For example, this article synthesizes empirical and theoretical findings about the nonprofit wage gap: Hallock, K. (2000). Compensation in nonprofit organizations [Electronic version]. Research in Personnel and Human Resources Management, 19, 243-294. http://digitalcommons.ilr.cornell.edu/hrpubs/18/ ↩︎
A shortage of experienced talent seems clearly problematic. One could argue a hyper-competitive job market is a positive thing, but anecdotes like this are obviously worrisome: “I've recently graduated from one of the top ~10 universities worldwide, after investing heavily in EA throughout my studies. While a student, EA was the biggest thing in my life… Over the last seven months, I've made over 20 unsuccessful job applications (I keep a spreadsheet). This has increased the severity of my depression and anxiety. Over time, I began to shed my identity as an EA, no doubt as a self-defence mechanism.” ↩︎
I’d also suggest surveying a broader set of organizations. The latest survey included some changes that partially addressed concerns that have been raised about the potential for serious selection bias, but much more could be done in this direction. That said, I recognize the EA community has some experts on survey design (Rethink Charity has done a terrific job with the EA Survey for instance), and would welcome (and generally defer to) their suggestions. ↩︎
The 2017 EA Leaders Survey asked respondents “If you tried to spend more money on attracting talent what might you do?” While most respondents provided ideas (typically raising salaries and/or investing in recruiting), about ⅓ noted concerns that a higher salary for a new hire would require raising salaries for existing staff to avoid resentment. My suggested new question intends to get more explicit and quantified information about the extent to which this dynamic is shaping EA hiring decisions and organizational growth trajectories. ↩︎
To make these comparisons, it’s generally helpful to discuss salaries via a certain sized discount (premium) to market, in percentage terms. For example one might say: “Organization X pays senior developers 20% more than what other nonprofits pay, but that’s a 30% discount to the open market so they’re having trouble hiring.” If that message were expressed in dollar terms (rather than percentages), it’d be less comparable to analogous messages about different roles, geographies, etc. ↩︎
Asking organizations how much financial value they place on their last hire appears particularly confusing and problematic. I’d also suggest discontinuing the “discount rate” approach to measuring hiring urgency since it is yielding results that are too noisy to act on. Instead, I’d ask organizations to directly rate how urgent they find hiring on a Likert scale. ↩︎
Here’s a simplified example of my intuition on the right strategy for the EA ecosystem to adopt. Imagine an EA organization is trying to make an important hire with skills that are highly desired by the for-profit sector. If good candidates could earn $75,000/year elsewhere in the nonprofit sector, and $150,000 in the for-profit sector, initially offering in the neighborhood of $100,000 could be a good strategy. At that salary, the EA charity would be extremely attractive to candidates strongly leaning toward nonprofit work. And while candidates would still need to take a substantial $50,000/year discount relative to what they could earn in the for-profit sector, that’s a much smaller discount than other nonprofits would require. So offering $100,000 could attract a lot of people who are on the fence about nonprofit and for-profit work (perhaps for reasons that have nothing to do with their mission alignment or job fit). If we change the example to someone who could earn $1 million (or more) in the for-profit sector, my intuition is much weaker. In principle, I don’t have any objection to nonprofits paying key staff hundreds of thousands of dollars a year if that makes them more impactful overall. ↩︎
Imagine a parallel universe where 80K’s original insights about talent gaps were released with a title and framing of “Why talent gaps may be more important than you think” instead of the “Why you should focus more on talent gaps, not funding gaps”. I think the EA community would be more impactful and on a better trajectory in that universe. For what it's worth, I agree with 80K’s clarification that “it’s possible for an organization to be mainly constrained by a certain skill, or funding, or both, or neither”. But I don’t think their headline summary of the issue (“skill and funding constraints are not opposites”) captures the essence of the relationship which I see as “funding gaps are a frequent cause of talent gaps, particularly in sectors with structurally non-competitive salaries”. ↩︎
I’m wary of theories that assume “EA exceptionalism.” EA organizations aren’t the only ones staffed by people who believe they are working on the most important cause, and are sacrificing earning power to do so. ↩︎
As someone who's worked as a manager in a non-profit (although mission-driven, it wouldn't be considered EA) long enough to see attrition and remain in touch with many employees that remained or left, I hope my observations may add value.
-Many employees weren't motivated by salary. This can be for any number of reasons: eg. their spouse has an exceptional income, their interests outside of work require little money, etc.
-Status counted for a lot and takes many different forms:
-The ability to maintain relationships with wealthy donors, elected officials, and prestigious foundations clearly appealed to many people who worked there.
-The organization enjoys its own national prestige, especially within its general problem area.
-Arguably, many people outside your workplace grant you 'halo-status' for merely working in a non-profit, even if they have little understanding of what you or the org actually does. I've noticed the substandard pay, working conditions, actually augment this effect by some 'costly-signaling' mechanism. If your work isn't capital-e Effective, that might count for little; however, many employees who considered their work important enjoyed the sentiment and found it well deserved.
-The only departments where wage dissatisfaction was common was where employees both worked long hours and had a skill-set that was easily transferable to the private sector. Although I'm not sure if employee turnover was necessarily higher than other departments, those who have left often have ended up in higher-paying, more conventionally prestigious jobs (eg. a Big-X consultancy or accountancy firm). Accounting, which furthermore lacks opportunity for tangible direct impact, did seem to have the greatest turnover and wage dissatisfaction.
-Many people that left remained within the social sector with presumably comparable compensation. Interestingly, many perceived the organization they joined to be more effective. Others considered other orgs' missions to better align with their own values. I know of four employees that actually returned to the organization after leaving several years prior. In an org with around 130 employees, I find that quite remarkable (but I'll admit I have no base-rate). It would be interesting to understand what motivated them.
An important point to make clear: many people who worked there weren't slouches by many conventional metrics. The organization dramatically over indexed the social sector by number of Ivy League alumni, or from other selective schools. Most were remarkably intelligent, adaptable, and agreeable. Most employees found the calibre of their peers to be one of the better perks of the organization, many remain in touch to continue to exchange high-quality ideas. As to whether this was the direct product of the org's efforts to attract talent or some accident of history that led to an agglomeration of talented people recruiting their talented peers is hard for me to tell.
My basic argument is that while 'all things being equal' wages certainly do matter, there are so many other factors that attract employees. I do think more operational positions, such as accounting should be compensated more closely to the private sector, and I do think some management roles should be recruited from the private sector, so wages may have to meet their expectations. (I do wonder if that would lead to second order effects, with it calibrating all employees' expectations or sparking resentment).
As mentioned, I hope this contributes...let me know if something needs clarification.
I think it perfectly makes that the people you worked with weren't that motivated by money. Presumably, the people who needed to care for their aging parents or pay off massive student loans or had other significant financial constraints couldn't have afforded to even start working at the non-profit in question.
This is a very important point. EA already skews high-privilege for a lot of reasons (e.g. founders and network effects) which introduces various biases. Even the process of applying for EA jobs favors high privilege people. So salary norms that reinforce this will compound an existing problem.
The problem isn’t that EA orgs can’t get talented people. It’s that they get the same kind of talented people, and they systematically miss out on other types of talented people that they also need. We need complementary skills (and perspectives, networks, etc.), and we’re only getting some of what we need. Finding people who are talented but not privileged is a good way (but not the only way) to close the gap.
Two things I should have mentioned in my first post the would have provided some clarity. While many employees certainly were privileged, the HQ was in a lower cost of living city - it was easier to live on a more modest salary. But I completely agree: although there was usually an excess of applicants, the low salary must have filtered out a lot of people.
I'm curious what the cultures are like at different organizations recognized as Effective? I'm sure some individuals participating in this forum could speak to that. I've read the observation that EA skews somewhere in the neighborhood of 70:30 male:female, whereas my non-EA org was closer to 30:70 with employees being mostly female.
(I'm uninterested to what degree differences in preferences between sexes are innate vs. socialized). Getting that out of the way: my org prioritized benefits such as generous Paid Time Off and flexible schedules, incentives which tend to be requested more often by women than men as they become more senior. How much does the talent constraint and gender skew in EA orgs, at least in part, overlap?
One example from my old NGO: PTO increases where related to seniority, a measure that seldom seems incentivized as much as it used to as organizations want to signal more interested in performance and notions of merit. Considering how much expense and productivity is lost from losing an employee and having to replace them, I suspect rewarding seniority is less irrational than some may think.
PTO was also given for going 'above and beyond' by lending yourself to smaller programs within the org that needed a temporary injection of labor. This scheme seemed similar to a physician retention program piloted in Stanford's Emergency Dept. around 2014 - domestic services (like Blue Apron, or cleaning services), along with other non-monetary rewards, were given to MD's that participated in activities outside their position's core functions, such as mentorship. Interestingly, prior to the pilot these activities were mostly taken on by men, but women achieved parity in participation once the incentives rolled out. This was considered particularly promising as those activities are associated with advancement.
Terrific anecdata, thanks for sharing! Great illustrations of how intentional compensation/HR policies can help organizations access broader pools of talent.
The EA survey showed the community as a whole tilts heavily male as you say, but I have no idea what the gender split would look like if you looked only at people who work at EA orgs (or at senior people in EA orgs). Would be fascinating to do a survey of EA employees to get a sense of demographics, skills, opportunity costs, how they found the job, etc. In a Facebook discussion about this post someone proposed looking for “a Head of Compensation and People Analytics for the EA community”, and this is the sort of data they could collect and use to inform specific policy suggestions.
It's unclear to me what you mean with privilege. I'm trying to imagine a situation where making 75k is not enough for a low-privilege person, but I can't think of any. AFAIK 75k is an extremely high wage. I know a CEO of a bank that makes that.
Toonalfrink, I'm hesitant to provide a concrete definition of privilege because it's definitely an amorphous thing. That being said, since I know it does mean very different things in different countries, so I should have provided some context in my examples:
Employer Location: US major metropolitan city
Entry level salary/benefits: $35k; competitive health insurance; no 401k/403b (retirement fund) match; no maternity leave
Looking briefly as US dept of Education data, the median American student loan debt burden for those with a bachelor's degree is around $12k at graduation. The high-performing applicants from selective schools undoubtedly had better-compensated employment options. Assume private and selective schools generally costing more, and higher-earning/more-educated families are generally more capable at navigating the US scholarship and financial aid system (these are both true generalizations, forgive me for not dredging up hard figures to support the claims). It starts becoming clearer why employees in such an org disproportionately came from comfortable backgrounds.
Further, many employees at the organization in my example had previously worked at the org as unpaid interns there for at least a semester (14-16 wks), and generally for >8 hrs/wk for several months. Some were interns after graduating. While that meant we (as the employer) could understand those applicants better than any interview would have allowed us to, many individuals simply can't afford to commute to a center city office and effectively volunteer for that long - they need to work to support themselves.
Hope this provides clarity, at least with my use of the term.
It does provide clarity, and I can imagine that there are unfortunate cases where those entry level salaries aren't enough.
As I said elsewhere in this thread, I think this problem would be best resolved simply by asking how much an applicant needs, instead of raising wages accross the board. The latter would cause all kinds of problems. It would worsen the already latent center/periphery divide in EA by increasing inequality, it would make it harder for new organisations to compete, it would reduce the net amount of people that we can employ, etc etc.
But I could be wrong, and I sense that some of my thoughts might be ideologically tainted. If you feel the urge to point me at some econ 101, please do.
The latter seems substantially better than the former by my lights (well, substituting 'across the board' for 'let the market set prices'.)
The standard econ-101 story for this is (in caricature) that markets tend to efficiently allocate scarce resources, and you generally make things worse overall if you try to meddle in them (although you can anoint particular beneficiaries).
The mix of strategies to soft-suppress (i.e. short of frank collusion/oligospony) salaries below market rate will probably be worse than not doing so - the usual predictions are a labour supply shortfall, with the most able applicants preferentially selecting themselves out (if I know I'll only realistically get $X at an EA org but I can get $1.5X in the private sector, that's a disincentive, and one that costs the EA org if they value my marginal labour more than X), and probably misallocation issues (bidding up wages gives a mechanism for the highest performers to match into the highest performing orgs).
It's also worth stressing the "Have a maximum, but ask the applicant to make a first suggestion; don't disclose wages; discourage employees sharing their salary with other employees" isn't an EA innovation - they are pretty standard practice in salary negotiation on the employer side, and they conspire to undermine employee bargaining position. Canny employees being confronted with 'how much do you need?' may play along with the charade ("I need $10k more for leisure and holidays which are - promise! - strictly necessary to ensure my peak productivity!") or roll their eyes at the conceit ("So I need $X in the sense you need to offer $X or I won't take the job").
Moreover:
I'd add that I think there's something to be said in favor of a needs-based model in the early stages of a startup. For as long as you're heavily funding-constrained, it allows you to hire a greater number of people at a given cost. (This is essentially first-degree price discrimination; maximizing producer's surplus (≈ altruistic utility) can IMO be a good idea under some circumstances.) One could argue that even then, promising EA startups should (and will) be paid better, but I'm not sure this always works out in practice.
Other than that, I agree.
Well put Gregory, you nicely captured a lot of concerns I have about the "pay by (reported) necessity" model.
I think you’re right that these problems in would occur if a handful of orgs with the most money started raising salaries across the board in the current environment. But a commenter on FB summed up my econ 101 read on this perfectly (to reiterate I'm not an economist): “If the community can't afford market rates maybe it's time to start admitting that the community is funding constrained.”
Great post, strong upvote.
Question: if all you knew about a bank was that the CEO made $75k a year, would that knowledge make you more or less likely to invest in that bank (from a purely financial perspective)? That would make me way less likely to invest.
Here’s a simple example: imagine that you, or someone you were responsible for taking care of, had medical expenses of $100k/year. In that case, $75k wouldn’t even let you break even, you’d still be taking on lots of debt.
Other examples: you have debt, you have kids (and/or other relatives you’re financially responsible for), you live in a high cost of living location, or various other factors that have no relation to someone’s suitability for a job.
Given the numbers that we have in mind, these examples are all very specific to the US.
Medical expenses don't get much past $2k per year in most European countries. The only place where cost of living is prohibitively high past a ~$30k income, is San Francisco.
I'm not arguing against the idea that some people exist that should be given the $150k that is needed to unlock their talents. I'm arguing that this group of people might be very small, and concentrated in your bubble.
I think that's the crux of the argument. If a majority of senior people needed $150k to get by, I'd agree that that should be the wage you offer. If these people make up just 1% of the population (which seems true to me), offering $150k to everyone else is just going to cause a lot of subtle cultural damage.
Very well put. Agree this is the crux of our disagreement; my intuition is that there’s a much larger pool of people who would be enticed by the higher pay.
I think it would be very difficult to raise a family in London on $30k (or even £30k). Rent for a family home in good repair in Zone 2 is like £2000 a month. So a £30k salary would only cover the rent of a place like that.
To make £30k work, you'd have to live quite far away and have a long commute, which has a major impact on quality of life. I think that's true in many other major cities.
30 was just an arbitrary number. Is London still hard to live in for 60? Mind that the suggestion is to raise salaries from 75k to 100k. I can't imagine many cases where 75k is prohibitive, except for those that feel a need to be competitive with their peers from industry (which, fwiw, is not something I outright disapprove of)
We should probably operationalize this argument with actual data instead of reasoning from availability.
Using NYC as an (admittedly US-centric and high cost of living) example, the average cost of private school is ~$18k/year, and many of the good ones are around $50k. So if you think of a couple that wants to have a couple of kids, doesn’t want to send them to a bad (possibly dangerous) public school, and would like to put those kids through college, it’s unlikely those people would even consider non-profit work unless they had unusual circumstances that would allow them to do so (e.g. one partner with particularly high earning power, a trust-fund, etc.)
Okay, you've convinced me that a US based EA organisation should consider raising their wages to attract top talent.
This data does make me doubt the wisdom of basing non-local activities in the US, but that is another matter.
dgjpalmer, thanks so much for sharing your thoughts and experiences!
-I largely agree with your description of the different forms of non-monetary compensation non-profit employees receive, like different forms of status.
This data point on the relative satisfaction across roles is very helpful and relevant. Your experience is totally consistent with economic theory, which would predict highest dissatisfaction in roles where there’s a high opportunity cost (people could earn lots more in the private sector) and where the work doesn’t generate much of a “warm glow” (like accounting vs. direct service). This is why I think it’s important to get a handle on what sorts of roles this applies to in the EA ecosystem and how big those opportunity costs are for the best candidates.
-I didn’t mean to suggest that nonprofits can’t attract talented people (though it sounds like your organization might have been exceptional in this area). Like you, I’ve been fortunate to work with some amazing people who have worked at steep discounts to what they could otherwise earn because they believed in a charitable mission, some of whom have volunteered their time fully. My argument is that nonprofits (especially EA nonprofits) are only able to attract a narrow type of talented person, and that this narrowness inhibits their effectiveness. For instance, as Khorton observes low salaries weed out people who aren’t mission aligned but they also weed out people without a lot of privilege. I’ll discuss this more in a response to her comment.