Soft-Targets and Incentive Compensation in Non-Profit Organizations

Abstract

Monetary targets are highly prevalent in fundraising campaigns. Although some theoretical research has been conducted to explain why fundraising organizations set such targets when charities are raised to ful ll certain capital requirements, there has been no literature that can suitably answer why a target is still announced when such capital requirements are not present. On the other hand, empirical studies have shown that performance-based incentive compensation has become more and more prevalent in the nonpro t sector. Based on the empirical observations, the author theorizes that fundraising organizations implement incentive compensation that is dependent on whether a soft target is reached, in order to motivate the fundraising sta to exert more e ort in reaching out to potential donors. This paper presents a theoretical model using a game theory framework to account for the existence of "soft targets" in the fundraising industry.