Let's Dig Deeper when Evaluating Non-Profits
Julia Foster, CFRE, MBA
Using my career and life experiences to help you achieve your goals!
OK...I keep seeing this Nonprofit CEO Compensation chart in internet memes, and would like to respond with a request to dig a bit deeper than CEO Compensation or even % to programs.
While I applaud the efforts to parse out "good" charities from "bad," I caution that things are not always what they seem and this chart is an oversimplification that may not be realistic. Let's be honest...any organization collecting multiples of millions of dollars really HAS to have some paid staff in order to process gifts, go to the bank, thank donors, and, of course, run actual programs. It's naive to think otherwise. Moreover, the way financials are shared on Form 990s can be spun several ways.
Let's take Ronald McDonald House as a case in point. OK, per their 990, CEO has "no salary." Except that CEO is actually a Senior VP with McDonald's Corporation, which means the actual compensation (paid by corporate, not the charity) is probably well over 7 figures (this is just my personal guesstimate, but I'm sure it's no small sum, in any event). So while it appears they aren't paying their charity CEO, the reality is they're just handling that compensation within the corporate structure. Someone is STILL being paid to run this enormous charity. (And I'll add one should investigate all corporate-affiliated nonprofits in a similar way. All, or at least a portion of, compensation may be paid by the corporate entity. No judgment here, but let's just be realistic when we try to compare apples to apples.)
Moreover, the fact that such a high percentage of their funds goes to "programs" is largely a result of the fact that Ronald McDonald's central operation is a granting organization that sends "grants" to the regional Ronald McDonald affiliates. Look up the 990 of any of the regional affiliates, and you'll see several well-compensated executives listed on each one. In addition, note that even the central charity spends about $2 million each year for independent contractors, so again, while it appears there are zero salaries, in reality, many people are being paid to do the work that any large company would need to have done.
When evaluating % to programs (vs. salaries), let's also consider that some charity work is inherently labor intensive as a function of its programs. Take, for example, a charity whose main function is mental health help. Their "programs" are largely tied up in the salaries of mental health professionals whose time spent in therapy sessions IS the program. Does this make their work any less valid than a nonprofit whose money is largely spent, say, buying coats for the homeless? How much of those salaries is assigned to "programs" vs. "general overhead" on the Form 990 will vary from nonprofit to nonprofit. (Form 990s can be notoriously vague here...there's no foolproof calculation...just best estimations on the part of nonprofits as to what percentage of whose salary will be "counted" as programmatic in nature.)
Again...not trying to minimize the good work that Ronald McDonald or any other charities might do. Just cautioning that blanket charts can be very misleading and that one should do a little more digging to really understand the Herculean efforts required to run multi-million dollar nonprofits. The singular statistic of CEO compensation, or even % to programs, is not necessarily a valid marker by which to judge the quality of a charity's work.
Using my career and life experiences to help you achieve your goals!
9 年Thanks David for further clarifying. Indeed, the Corporate employees "donate" their time to the Foundation side. But it's clearly part and parcel of their "job" on the corporate side to help or even run the foundation. It's just not a fair comparative to a standalone nonprofit that has no corporate entity from which executives can "donate" their time. At the end of the day, someone has to manage the organization, make decisions, run programs, account for money, track and file financials and taxes, accept gifts and acknowledge donors. No matter how you slice it, this work just doesn't happen for free. Someone, somewhere, somehow generally should be getting paid (unless they're independently wealthy) for their time to operate the nonprofit.
Principal, retired at Inventory Curve, LLC
9 年I do a fair amount of research on financials for nonprofits and/or tax-exempts using their 990's. However the format I use is to look at their profitability since I believe that these organizations do need to make a profit in order to sustain their mission. Looking at the Ronald McDonald 990 it lists no paid or permanent employees. Schedule O notes that time is donated by employees of McDonalds. The 990 shows Program Service Expenses accounting for 89% of expenses. In the line items, Grants make up 74% of expenses. On the Balance sheet side, the Net Assets/Fund Balance grew by $13M to $135M and Unrestricted Net Assets grew to $131M. With the exception of the zero compensation, the picture presented here is reasonably similar to what I see with many other organizations.
Executive Fundraising Consultant (RETIRED)
9 年This is a very astute article and I plan to copy it and send it to my client. She can use your McDonald's model to explain what often happens at large corporations. A major part of her budget is also for program salaries . The teaching staff are inherently important and without them there would be no program to offer. Thanks for bringing this to our attention.
Affordable Housing Development · Government Relations · Licensed Attorney
9 年Thanks for this - totally agree, it's something that comes up often enough here, as well, and I find your point recognizing "that some charity work is inherently labor intensive as a function of its programs" hugely important - and hard to quantitatively assess.