Thursday, July 14, 2005

Reflections on salted peanuts: The NKF saga, public outcry, and flawed reasoning supporting astronomical salaries

I have always been fascinated with peanuts and those interesting views about peanuts. This post is thus dedicated to the analysis of these lovely nuts...

First, there is an influential school of thought that says that CEOs of all multi-million dollar organizations should be paid lots and lots of money. Proponents of this school of thought often attempt to boost their arguments in two steps. Firstly, they will assume that all organizations involve a similar degree of managerial complexity simply because they all involve 'multi-million dollars'. Secondly, they will assume that pay packages come in two and only two discrete quantities - that is, one either gets paid the package with peanuts, or you get paid that package with gold bars. With this reasoning, they then claim that we cannot pay talented people peanuts (which I do agree) and so we need to pay them gold bars (which I do not agree). Thus they present this seemingly convincing argument by comparing two opposite extremes, saying that if one extreme position is untenable, then it automatically means that the other extreme position is good. This argument is fallacious, and ignores the fact that there can be different pay scales which can be finely calibrated to strike a balance between a range of priorities. In the following paragraphs, I will proceed to further challenge this influential school of thought.

On the issue of managerial complexity, proponents of the above school of thought usually invoke two examples: one from politics and the other from the business world. The political example says that CEOs of charity organizations are not very different from government Ministers, and since Ministers are highly paid, therefore CEOs of charity organizations should similarly be highly paid. I find this example to be inadequate, mainly because I feel that a Minister's job is so much more difficult than the job of a CEO of a charity organization - the responsibilities are much greater, and the entire nation's well-being is at stake.

The business example says that CEOs of top MNCs are paid the same amount or more, so CEOs of charity organizations should be paid similarly. Again, this example is not adequate because it treats the environment surrounding the two kinds of organizations as roughly the same. I feel that the environment surrounding a business organization is very different from the environment surrounding a charity organization. Firstly, a business environment is so much more volatile, risky, and competitive; a non-profit environment is just the reverse. Secondly, in order to survive, business organizations need to provide goods or services which people will need or want, and then persuade people to pay for them; and that persuasion is not easy. Charity organizations, on the other hand, obtain money through a rather different logic: they appeal to the kindness and goodwill of members of the public. And this is much easier, I think, because Singaporeans are quite compassionate. :) Business organizations, operating in a hypercompetitive and volatile environment, have a more difficult time since they have to constantly innovate and keep up with their powerful competitors and come up with new products that people will want to pay for. This imposes challenges on the managerial teams that are far greater than those faced by their counterparts at the charity organizations operating in relatively more stable environment.

Thus, I feel that the argument that bosses and managers of business organizations deserve their extremely high salaries is a strong one, while the argument that bosses and managers at charity organizations deserve extremely high salaries is a weak one, even though these two arguments look very similar on the surface. I think for charity organizations, reasonably high salaries are acceptable but astronomical salaries are not. My conclusion stems partly from my personal view that charity organizations are guardians and aggregators of the public's money, which means that what is needed is not extraordinary talent but only ordinary competence and honesty. I am not saying that NKF is not honest; it is, but what I'm saying is that there is no need to hire an extraordinary supertalent to manage NKF. Someone who is ordinarily competent and honest would do (for example, Heavenly Sword...hehe, just kidding) :) I think as long as Singapore remains a compassionate society, the charity organizations will continue to receive the inflow of cash (although I'm not sure what's going to happen to NKF from now onwards). My impression is that the source of the cash inflow lies not so much in the extraordinary talent of the CEOs, but in the compassion of the societies that they are appealing to. This also means that the view that the CEO somehow magically and single-handedly 'made' a particular charity organization a multi-million dollar organization is flawed.

Finally, I would highlight some interesting observations that I have noticed. Many people have cancelled their monthly donations to NKF, and many more are thinking of doing so. Just within my social circle, at least 5 people have cancelled or are going to do so. I personally feel that they should not cancel, but then, hey, this is their hard-earned money, so who am I to say anything? They feel that if $600K is peanuts, then what they are donating must be even more insignificant than peanuts - very much like the salt on the peanuts! And since the amount is going to be insignificant for NKF anyway but nonetheless significant for themselves and their families, they might as well keep the money. I can fully understand this feeling: it's like a friend coming to borrow or rather, ask for money from you when you are already struggling to make ends meet. You help him out of compassion because he tells you that every dollar counts, and then one day you find out that his living standard is actually much higher than yours. How would you feel?

At this point, I do not know how to end this post for once - because on this occasion my emotions are involved. In fact, there would be nothing worth discussing if this issue were only a matter of business or economic analysis (contra Mr Brown, Oikono, and a few others). It is precisely because this issue involves multiple dimensions that the discussions became so extensive. The quick dismissal of that 'focus on the high pay' issue (saying that this is not the main issue or a big issue) is far too hasty, in my opinion. It should be a big issue in this case, and while it may not be the main issue, I certainly feel that it is one of the main issues. Lastly, I think that this issue can be made bigger or smaller by the people, so the assumption that its bigness or smallness is an inherent quality of it is wrong. If the public makes it a big issue, there must be a reason - a reason involving what is morally ideal or not ideal, rather than what is legally allowed or not allowed, or what is informed or not informed by business logic.

********************************************************
Updates

(1) Other related articles not already linked: Diverse opinions accessible from Tomorrow.sg. Check out also the interesting article on 'charitable gamblers' at Ivan's Chimera, the thought-provoking post at A Life Uncommon, and MercerMachine's funny cartoons.

(2) Host of NKF Cancer Shows, Mr Cao Qi Tai, annoyed quite a number of people with his closing remark made in the final show - something along the lines of "You can forget the donation hotline number after tonight, but I won't" (in Mandarin/my translation & interpretation; 14th July 2005).

(3) I salute Ms Susan Long, the great journalist from The Straits Times, for her professionalism. Well done! And I think that SPH has been fair and comprehensive in its reporting of this event - especially the ST articles on 14th & 15th July.

(4) Excellent quote 1: "You need to know whom you're donating to, how this money is going to be used, and have the assurance that the money will be put to a good and appropriate use." - Dr Vivian Balakrishnan, Minister for Community Development, Youth & Sports (ST, 15th July)

(5) Excellent quote 2: "NKF is an organization that has been built with public donations. In a way, therefore, the public are the moral owners of NKF...So the public have expectations on transparency and how things should be done." - Dr Balaji Sadasivan, Senior Minister of State for Health (ST, 15th July)

(6) Excellent quotes 1 and 2 show that some bloggers' attempts to 'play devil's advocate' are misguided (re Mr Brown, Oikono, and others who invoke what I would call the 'business school argument').

20 Comments:

Blogger John Lim the-one-who-splits-PAP-apart said...

hey, H-S.

I will love to believe Singaporeans are really that compassionate in donating into NKF and not out of the perks dangling infront of their TV sets.

However I just feel cynical and it is just too easy to be so.

just my little rant.

rgds.

Thu Jul 14, 08:53:00 PM 2005  
Blogger Heavenly Sword said...

I think many pple donate truly out of compassion, esp. those who donate monthly. Maybe some (perhaps 30%? of those watching the shows on TV) donate due to the perks, I'm not sure...I do think that $600,000 is definitely too much for a CEO of a charity organization.

Fri Jul 15, 07:30:00 PM 2005  
Blogger A.Ball.of.Yarn said...

you should also consider referencing Molly Meek's excellent fable on the donkey, human and monkey. :) Personally I think it's the best of the lot out there.

I've tried not to comment on the bloated pay issue, but I'm more interested and hopeful that this entire event is a mighty kick in the elephant's backside - bringing more transparency to NKF's finances in the future.

Fri Jul 15, 10:28:00 PM 2005  
Blogger Huichieh said...

Just posted a long one: it's not a defense of the "business argument" but an attempt to sidestep the whole deal.

Sat Jul 16, 02:07:00 PM 2005  
Anonymous Anonymous said...

Why did the donors reacted so strongly?

As a donor, I believe in NKF. I believe in its cause. I believe my contribution has helped those less fortunate than me. I believe because NKF told me so. NKF showed me so, lucidly on screen, the sufferers themselves speaking to me, thanking me, touching me....

I cannot believe I had been a fool! I cannot believe I had been made a fool! I cannot believe I am so gullible! I just cannot believe NKF and TT Durai are now telling me I had been a fool!

No! I was not a fool! I am still not a fool! It was NKF! It was TT Durai! It was all their faults!

Donors are in self-denial mode. They saw the sheep skin slowly removed in court and voila, the wolf appeared. They saw their prints in the sheep skin. They said," No! It was the wolf! It was his fault! Let's us skin him and hang him dry!"

My take of this is that donors will soon forget about NKF and TT Durai. They will move on. Gerard Ee need not worry. Put up another NKF Show next year and my bet is on the donors coming back for more, yes, for more prizes. Donors will swallow hook, sink and float.

Why am I so sure?

Because for the last 4 years, I had swallowed hook, sink and float. And if dangled, I will still swallowed hook, sink and float but perhaps this time round with more finesse (lol)

Sun Jul 17, 02:34:00 AM 2005  
Blogger akikonomu said...

Actually, I'm in the middle of a series of approximately economic school analysis of the 'NKF saga'. Let's not assume that employing the school of business or economic analysis naturally leads one to exonerate Durai, please?

Sun Jul 17, 09:32:00 AM 2005  
Blogger Huichieh said...

No, I really doubt that even on the "business argument", Durai would be exonerated. It might justify the 300K plus performance bonus, might, and probably little else; certainly not the lack of transparency. And it would only do so given certain assumptions about how NKF conceives of its operations and how it portrays its operations to the donating public.

Sun Jul 17, 11:14:00 AM 2005  
Blogger justice4nkfdonors said...

Charities should have dynamic leaders who are out to aggressively market their cause and seek donor dollars. They cannot just rely on the compassion of Singaporeans alone. They should rely on ethically and actively invoking the compassion of Singaporeans.

Because NKF relies on public donations and it failed to convince us that it has used its funds "properly", that is why all of us are on a bloodlust now.

Mon Jul 18, 09:59:00 AM 2005  
Blogger Dorothy said...

I think the reason why the donors are screaming blue murder right now is not really because of the amount of money involved, but the amount of compassion that Singaporeans had grew to feel for the kidney patients after years of watching touching scenes of them during charity shows. Thus, it is not surprsing that many of the donors feel 'betrayed' by the NKF after the saga. Like all organizations funded by the public, the NKF has to answer to the public. It has a moral responsibility to do so.

Mon Jul 18, 06:39:00 PM 2005  
Blogger Heavenly Sword said...

Greetings!

ball.of.yarn: Thanks for the link. Transparency is indeed critical!

ah huat: Everyone left in order to give NKF a new lease of life - that's the only reason, I think...As for whether Durai himself donated, that's an interesting question for speculation. I would think he did...

anonymous: An interesting psychological description indeed. Ivan's Chimera has a nice post on this...(or are you Ivan himself?) :)

akikonomu: Would be glad to read your analysis once you're done. I may be convinced, if it's well argued :) Actually, I didn't really assume that economic/business analysis would necessarily lead one to exonerate Durai. I was targetting only those who have already exonerated Durai based on economic/business analysis...

justice4nkfdonors: I do agree that we need dynamic leaders. But I think that with a reasonably high salary, we should already be able to attract such leaders...(re my earlier article on 'proliferation of talent' in the contemporary era)

huichieh: well-said...One point, though - although I do agree that charity organizations should be run like a business, I think that the level of pay is a distinct issue...

dorothy: I do agree that the compassion that they have come to feel for NKF patients is a major factor worsening the emotional pain...However I also think that this emotional pain is intensified (at least for many donors) by the sheer amount of cash involved...

Thanks, everyone, for sharing your thoughts! More comments or trackbacks will be welcomed :)

Mon Jul 18, 10:16:00 PM 2005  
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