Nearly 1 million people have viewed Dan Pallotta’s recent TED Talk, “The Way We Think About Charity Is Dead Wrong.” One of his most lauded and controversial assertions is that compensation in the third sector is too low to attract the talent necessary to solve the world’s most pressing problems. His resonant phrase is: “The $400,000 talent will not work for $84,000.”
Pallotta’s case for paying higher wages has wide appeal—it echoes deeply held beliefs about pay and merit in the United States. We want the neurosurgeon, the cancer researcher, and the bridge designer to be well paid, because that reassures us that they are well qualified and performing their life-or-death tasks with vigor. Pallotta’s vision rests on stubborn myths about meritocracy—and it is precisely these myths that impede efforts to address poverty and inequality in the United States.
Myth #1: There are $400,000 talents. The first falsehood is that there are people who are just worth more. Defending wide inequality relies upon the notion that some people are worth much more, based on training, ability, or certain special qualities. This notion makes inequality appear legitimate to people at all levels, and thereby harder to redress. The use of the phrase “low-wage worker,” instead of “worker who is paid a low wage,” hints at a peculiarly American sleight of hand: Someone’s place in the wage structure is an indicator of their true merit.
Myth #2: The best people become the $400,000 talents. This is appealing if we believe that anyone can become a $400,000 talent. Faith in meritocracy requires belief that we all stand equally at the starting line. However, a high volume of data shows that upward mobility is increasingly rare in the US. The institutional infrastructure and structural racism that surrounds poor versus rich children means that there is not an equal contest for the $400,000 jobs. By embracing Myth #2, we can neither rest assured that we have found the best talent nor address the root causes of inequality and poverty.
Myth #3: The top person does the work that generates the value. The willingness to pay top money for top talent is based on the idea that executives have the “special sauce” that motivates others and generates results. Interestingly, this idea collides with an increasingly popular view of “a leader in every seat.” Indeed, “dispersed innovation” comes from all levels of an organization, including front-line workers paid low wages. In the third sector, these workers bring insights about root problems and connections to the community that generate trust, and, in turn, real change. Why not pay them more?
Myth #4: It’s relative pay that matters. Pallotta’s plan is appealing, in part, because $400,000 really isn’t that much when compared to private sector CEO salaries. Average top executive salaries at nonprofits range from $84,000 to $232,000. Meanwhile, CEO pay in the private sector averaged $12.9 million dollars in 2012, and it keeps ratcheting upward as top executives focus their comparison game on one another. What gets lost is the absolute numbers that should shock us. A $400,000 salary is a lot when compared to $18,720 (which Obama’s proposed minimum wage would yield) or $45,000 (twice the poverty threshold for a family of four and the income on which some 45 percent of families subsist, according to research).
Myth #5: The talent won’t work without the big prizes. It’s just not true. In the nonprofit sector, the mission-focused ethos has drawn many top executives to work for $84,000. Let’s consider cancer researchers again. They face a salary cap of $179,700 placed by the National Institutes for Health. Pallotta would argue that the best talent would therefore not be drawn to study cancer. However, talented cancer researchers who love their work have made much progress (while puzzled economists have concluded that “scientists pay to do science” when they forego higher pay in the biotech sector). The breast cancer mortality rate has dropped substantially from 100 percent sixty years ago to 23 percent today, a success that did not hinge on big salaries for talent. In fact, much of this success hinged on funding from the sector that Pallotta did not even mention—the public sector.
Pallotta offers an easy, market-based solution, putting the captains of charity on par with the captains of industry. He co-opts our national conversation about income inequality to advance his goals and the goals of a socio-economic elite that is content to believe in meritocracy and their own meritoriousness. We argue that it is misguided to base the pay of executives in inequality-alleviating nonprofits on ideological myths that have done much to reproduce and legitimate inequality. Let’s shine the light directly on the problem of inequality and poverty, not on those who need some additional economic incentives to get involved. Let’s pay living wages to “the great mass of humanity” and end the applause for those who think their wealth is proof of merit.