An interview by Lindsey Nadeau, George Washington University, featuring Amy Begg, Harvard University
I recently sat in on a presentation from Amy Begg, managing director of prospect management at Harvard University, where she explained the impact different industry compensation structures have on a prospect’s psychology. While her presentation covered a multitude of factors and resources on income, her insight on income psychology reframed how I think about capacity. I sat down with Amy to dive deeper, and below are highlights from our conversation. (For an overview of key income psychology factors by industry, Amy’s webinar is available via Apra Metro DC here.)
How does the structure of a prospect’s income impact their philanthropic capacity and inclination?
The way in which a person earns their compensation directly impacts the way they think about giving it away. Individuals who earn the bulk of their income in performance bonuses are ultimately less attached to their money. They experience significant, high-liquidity wealth events and know approximately how large their bonus will be. However, if the majority of a prospect’s wealth instead comes from salary dollars, their philanthropic inclination is likely lower. For most earners, if you can tie each dollar back to a specific hour of work, it’s harder psychologically for the prospect to part with that income. Focus your prospecting work on the individuals who earn their wealth primarily from bonuses.
A few more income psychology tips:
- Start conversations with these prospects early and try to get a sense of when their next wealth event will occur.
- Often, high-income earners know their daily or hourly rate—it’s something drilled into their psychology. Be careful not to ask for too much of their time. If a prospect’s hourly rate is $1,000, they may prefer to make the $1,000 gift to your organization instead of meeting with a gift officer. If you see a gift officer reach out for a gift, the prospect decline, and then make a gift, this might be a sign that they think their psychology may be that of a high earner.
- Specifically, investment bankers likely know the approximate value of their bonus around calendar year end, and their bonus is likely distributed in the first quarter of the subsequent year. For our higher education readers, remember that bonus season doesn’t often mirror reunion season. Regardless of your nonprofit industry, partner with your gift officers to understand a prospect’s bonus timeline to time the solicitation appropriately.
How much do you factor in compensation structure when assessing capacity?
We do not discount capacity based on income structure, industry or associated income psychology. One of the reasons we don’t discount is because the variance would be hard to account for and document, but also because prospects often switch industries over the course of their life and may adopt a different income psychology.
Instead, we classify ratings to categorize the nuance an industry’s earning profile may present. If a prospect’s assets indicate a major gift capacity of $500K - $999K, but they’re a lawyer (and that income psychology points to leadership annual giving levels at Harvard University), we classify them and engage them in that manner. Additional classifications at Harvard include: future potential, planned giving, principal gifts, major giving – and these are separate than the dollar value bracket. We also track children of wealthy families for future generational wealth transfers, and those prospects are automatically rated $500K - $999K. Specifically with our future potential classification, we look for young alumni in particular industries (e.g., hedge funds) who moved up quickly, but you can’t rate yet (e.g., because they are renting in NYC) so we don’t lose sight of them.
What are your top tips for uncovering specific factors that point to a prospect’s income psychology?
First, prospect development professionals need to step into the map a la Joey from Friends. We need to get out of our middle class mindsets and get in the heads of these high-income earners.
Some things to keep in mind for different income psychology profiles:
- Always consider industry and typical compensation structure and consider the prospect’s known or perceived ownership stake in a company or firm.
- Prospects who work in Hollywood might have a huge payday, but then they may never work again—whereas investment professional have multiple deals going on with a continuum of wealth events.
- High-income earners are less and less at the helm of public companies. You don’t have to go public to be a major force. There is more private capital available than ever before and celebrities and sovereign nations are serious investors.
- For those in fund management, Google the fund-specific Average Daily Volume (ADV) forms which may disclose specific assets under management (AUM) and the fund’s performance management fee structure. Additionally, are any of the funds closing soon? If so, the prospect is likely to experience a significant liquidity event.
When prospects are experiencing an economic bust (and therefore non-traditional compensation structures are likely bleak), what strategies do you recommend to maintain momentum?
Economic downturns are not the time to ignore high earners, even if their wealth decreases or their income stagnates. Double down on engagement opportunities and invite them to events or get them engaged in volunteer roles. The market will turn around again and you want them warm when it does. During recessions or crashes, your prospects likely want the opportunity to network with one another, and events and volunteer roles provide that forum. Your prospects will remember your engagement during the downturn.
Additionally, just because then market is in an economic down turn does not mean all prospects’ capacity is lower. Do your research and figure out who is up. During the 2008 recession, prospects in corporate law—especially bankruptcy—were strongly in the black.
How do you help your gift officers understand this concept?
Some of my fundraisers needed help understanding why highly rated corporate lawyers were not giving at the major gift level. It’s about talking to the gift officer and continual education. They may not understand why someone is rated so highly yet does not give to capacity. But it clicks when we talk to gift officers as opposed to writing them. Additionally, the classifications have helped—they’re only about three years old at Harvard University.
One of the things our team does to help educate gift officers about the income psychology landscape is lead an internal annual presentation of which funds are up or down and which sectors are outperforming. The team gathers press materials on industry and fund performance in December, compiles the data and presents to fundraisers. We also offer a training on ratings periodically that covers what does and does not go into a rating and the relative value of real estate based on the geographic market. We also integrate ad hoc trends into fundraiser trainings. We just developed a hidden assets training, where we train gift officers and support staff to flag specific soft indicators that imply a minimum level of wealth.
Given the psychological effects of income on capacity, how will you tailor your prospect strategy recommendations? Further, what educational opportunities will you seize to coach colleagues on the ideal solicitation timing and ask amounts? Are there opportunities to categorize prospects by income type in your CRM? Hopefully this topic has sparked creative ways to approach capacity and prospect management.
Finance and Investment
Medical and Health
This article relates to the Prospect Research domain in the Apra Body of Knowledge.
Wondering where to start on gift capacity estimates? Check out this presentation from Colorado State University.