Why a Pledge Should Not Count as Credit

 

 

 

 

 

I’m bracing myself for “hate mail” on this one. But I have to speak up. I do.

Here’s why: a promise to pay is not the same as paying.

In the last six months, Jeff and I have encountered a number of situations – in organizations large and small – where the credit policy for a major gift officer goes like this:

If you get a pledge from a donor we will credit (the MGO)  the entire amount toward your goal for the year.

I understand.

Then I ask the question: “OK, so you are saying that the $1 million goal a MGO has – it’s really not cash in the door, right?”

“Yes,” they reply.

“Well then, how are you going to pay the bills with a pledge IF it is not paid?” I say.

And we go round and round.

I got into this topic with a MGO recently. Let’s call him Bill. He was getting quite upset with me that I was saying a pledge should not count until it is paid. Quite upset.

So I framed it this way: “Bill, let’s say you are interviewing for a job to work in my company. We agree I will pay you $80,000. I tell you I will commit to $40,000 in cash and $40,000 in a pledge. You look at me funny and tell me that a pledge is fine if I pay it. But if I don’t pay it, you ask me how you are going to make your mortgage payment. I tell you not to worry about it. It will all work out. My pledge is good. I know it’s not cash. But it will be OK.”

Well, Bill got the point. It was good to have a pledge. Nothing wrong with that. But unless the pledge was converted into actual cash in the bank, it was no good.

I’ve seen one situation where a MGO was credited with a pledge for $2 million, and several things happened:

 

  1. He literally stopped working on the rest of his caseload. In his mind, he had reached his goal. The fact was that he was 80% behind on all the other donors. Not good. This is real money lost.
  2. Because the pledge was credited to him in its entirety, he had no incentive to keep the donor informed. In his mind, the money was in the door. No need to worry about it. The sad fact is that the pledge went bad and was not fulfilled after the first payment. I think it’s because the MGO stopped cultivating and stewarding the door.
  3. The organization missed a ton of operating revenue, and it hurt them financially. And this is revenue lost from the unfulfilled pledge AND the other donors who were not stewarded.

 

Pledges are good. Jeff and I don’t have one thing against them. It is really good to have a donor commit to future giving. Our only concern is about WHEN to credit the pledge. And we think that the crediting should happen when it is paid.

 

Richard

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3 Comments

  • Richard Perry says:

    Thank you, Rina and Eric, for your comments. The core problem I am addressing in the post is a finance department that has accepted the MGOs goal for the year as cash only. In other words “you told me you would bring in $1 million, I am putting $1 million in the actual cash revenue budget in order to fund program and operations.” If a donor, on that MGOs caseload, makes a $1 million pledge payable over 4 years, the organization (finance) cannot give credit for anything other than what is paid because they need to “pay the bills”. I recently was introduced to a system where finance creates goals for MGOs, and other fundraisers, that includes pledges in order to get around this very real cash flow problem. I think this is a good solution.

  • Eric Gifford says:

    Very provocative post. My employer (like most) actually does make a pledge for my salary. When we agreed on an amount when I was hired I didn’t get the money up front but instead it was pledged and comes in installments every month. Just my take on that analogy.

    Rina’s remarks are right on point. I think if pledge fulfillment becomes an issue and if there are really MGO’s acting like the one in the example then institutions need to find ways to create a culture that discourages that without the drawbacks of a cash-only credit system. I would be interested to hear from any organizations that have, in fact, given credit only for money in the door. I work for an institution where, yes, credit is given for pledges, but there is a great culture that emphasizes the MGO’s role in the relationship with the donor. We also have amazing stewardship programs so everything from pledge fulfillment to recognition to giving clubs/events, etc., enhances the donor’s relationship after the pledge is made. A full-team effort makes this successful and incentivizes the process for everyone involved.

  • Rina Reynolds says:

    I see both sides of this coin, and maybe it’s not a coin but more of a multi-faceted gem. I see the role of the MGO and their metrics as more complex. They should certainly be focused and evaluated on current cash/revenue, longer term relationships and pledges can indicate those, and also future gifts and bequests.

    Spendable resources are critical to the impact for which the organization exists. Pledges, bequest intentions and multi-year payment periods are also important to the organization because it provides the organization a road map for where the impact can go in the future and around which the leadership can plan. Recognizing donors for future gifts elevates their relationship and inspires others to consider similar gifts and gift intentions. If an MGO only gets “credit” or “gets to count” cash in the door… their focus may seem very short sighted and no seeds will be sowed for future gifts. No capital projects could likely ever move forward if multi-year commitments receive recognition.

    Perhaps the MGO needs two separate sets of metrics? One set answers the program’s repeated “what have you done for me lately” question… the other set says, “the future is bright, look where we are headed.”

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