I was recently talking to an executive in charge of major gifts for a large non-profit in the Northeast. He was engaged in a rather difficult conversation with one of his major gift officers who was not performing well. The MGO was in the 10th month of the fiscal year, and her donors’ actual giving for the fiscal year was 31% below where she should be. With only two months left in the year – two really slow months – it was obvious she would not reach goal for the year.
There may be several reasons a MGO does not reach goal. One might be that one or two donors moved their giving to fall outside of the year the organization is measuring. Another might be that a donor got angry, moved away or changed their mind. Or it might be that the MGO is simply not performing.
In this case, the MGO was not performing. She was having a very difficult time doing the job, and the numbers showed it. In fact, the current year was almost a replica of the previous year, which was also a year she did not reach goal. Her manager had given her another chance, but things were not going well.
The conversation with the MGO was difficult because she was making the argument that everything was generally OK with her performance because she had done all the right things, met all the activity metrics and was only behind in reaching the goal for cash in the door.
Plus, she added, she had just received a pledge from a donor that would be paid out over three years, that had a total value that would more than make up for what she was missing this year. In other words, the value of the three-year pledge exceeded the amount she needed to reach her goal for this year. And therefore, in her mind, everything was fine.
One other factor was at play in this MGO’s case. She correctly pointed out that even the finance department of the organization recognized a pledge when it was given, and they credited the MGOs in the organization for that pledge. So if the value of the three-year pledge was $300,000, payable at $100,000 a year, the total value of $300,000 was credited to the MGO when the pledge was made.
My head was spinning when I heard all of this. So I asked several questions, as follows:
- When the goals were set at the beginning of the year, weren’t those goals all cash-based? Answer: YES
- Did you turn those goals into finance as part of the major gift program commitment to deliver this amount of cash to the organization? Answer: YES
- Did the finance department take those goals, and the goals from other revenue-generating functions, and construct a budget with which to run the organization? Answer: YES
- Why are pledges counted as cash before they actually are paid? Answer: I don’t know.
Well, this was disturbing. So – and this might sound far-fetched, but hear me out – so, if all the goals of all the MGOs in the organization were fulfilled in one year by pledges that were not paid until the following year, wouldn’t that create a financial crisis for the organization? Wouldn’t the organization be cash-starved and not be able to meet its obligations? The answer is yes. So how does this even make sense? It doesn’t. You shouldn’t create a forecast for a caseload that is cash-based and then fulfill on that forecast by counting pledges. That doesn’t work.
It would be like me telling you that I will hire you for a $60,000 annual salary but then, two months into your job, I come to you and give you a piece of paper that says: “We don’t have the cash to cover your salary for the next months; but don’t worry, I promise to pay it.” If I did that, you would wonder how you would pay your bills. You can’t pay the mortgage or the car payment or go to the grocery store with the piece of paper I gave you. You need cash.
So crediting for pledges won’t work, which is why we suggest that you celebrate securing the pledge – yes, celebrate BIG – but credit as the actual cash comes in.
(The following statement reflects my personal observation, and not my employer).
Your point is well taken; however, what you are noting has been a point of discussion in many higher ed development circles for decades. “Cash in the door” is a complex point – how many people do you know who may have $50K to plunk down in your organization at one time?
At one major research university, a development officer is evaluated from three standpoints:
1) Pledges obtained
2) Cash “in the door”
3) Planned gifts – a planned commitment of $1 million through an irrevocable trust, for instance, is worth its weight in gold.
Thanks for the insight, though.
I have a huge question related to this. As far as MGO metrics/ performance I completely understand that pledges would not be counted towards annual goals but, accounting principles tell us that non-contingent pledges ARE counted as cash, and therefore ARE counted in the budget (in the first year the pledge is made)…. How do you reconcile MGO activity/ Metrics with the accounting offices insistence that pledges be booked as cash? In that case, pledges would need to be part of the overall metrics to be sure those dollars were at least replaced the following year and the next, and so on. http://www.nonprofitaccountingbasics.org/accounting-bookkeeping-revenue-contributions/pledges-receivable-explaining-basics-your-development
Lauren, you are correct that accounting principles require counting the pledge in the accounting system. No question on that and no argument from me.
And Michelle, I am totally tracking with you on your points on pledges and planned giving.
I think the fine point on all of this is clearly defining with the MGO, at the beginning of the fiscal or calendar year, HOW they will be evaluated and then following through with that. So, if an MGO plans (emphasis on PLANS) to do X in cash and Y in pledges and Z in planned giving, then that would set what is evaluated.
What I am objecting to is writing up goals the are cash goals then trying to fulfill them with pledges that don’t pay until the next financial period. Perhaps I could have been clearer on that. So, if the MGO does his goal setting for the year and the goals spring from individual giving from donors that are cash then it is difficult to switch in midstream and say it doesn’t matter that that MGO missed his cash goals by 40%.
I hope that helps.
It does! Thanks so much!