Not All Charities Are Equal...
but the majority are fiscally responsible
February 2, 2004
Since Charity Navigator was founded in April of 2001, our analysts have reviewed over 16,000 financial documents of America's non-profit organizations. The information we've extrapolated from those documents is used to generate the nearly 3,000 unbiased charity evaluations available for free on our web site. But there has been a secondary benefit to pouring over all this data. By being the only professionals to sift through and analyze this many charity tax records, we have been able to acquire a unique and informed insight into the inner-workings of the non-profit sector. Our perspective is one based solely on the real data -- what's really going on with the finances of our nation's charities -- and not based on anecdotal evidence, outdated perceptions, or protective opinions of the sector.
Many of us are familiar with our relatively small, neighborhood charities. Thus it is enlightening to first consider the scope of the philanthropic sector and the financial impact donors make. In their most recent year, the charities we've examined have generated $120 billion in total revenue and spent $114 billion. Of that total revenue, $62.1 billion was received as contributions from individuals, corporations, foundations and government grants and $46.8 billion came from program service revenue. Nearly 87%, or $98.9 billion, of these expenses were reported as program expenses. These charities also reported total net assets equaling $301 billion. Examined in this way, it is obvious that the charities we have evaluated create a significant economic impact in this country and have the power to make major changes in our society and environment.
While many philanthropic experts recommend that donors support charities that spend at least 60% of their budgets on programs, Charity Navigator's data paints a very different picture. We've determined that America's largest charities are much more efficient than previous observers expected. Our data shows that a full 7 out of 10 charities we've evaluated spend at least 75% of their expenses on the very programs and services that they exist to support. Furthermore, we've found that these same charities spend less than 10% of their budgets on fundraising costs and less than 15% on administration costs. That's great news for donors. It tells us that most large charities are well-run and excel at efficiently utilizing our donations to make the biggest impact possible.
Charity Navigator's data also reveals that charitable organizations are cognizant of their need to build capacity. Our rating system defines capacity by measuring a charity's primary revenue growth, program expense growth and working capital. In other words, is the charity growing its programs and services over time and does it have sufficient liquid funds to maintain its programs during a crisis? 46% of the charities on our site grew their primary revenue by at least 7% in the past three to five fiscal years and 58% demonstrated at least a 7% growth in their program expenses over the same time period. Furthermore, 42% of the charities have accumulated at least a year's worth of working capital to fall back on during economic downturns. Again this is good news for donors who expect their favorite charity to continue to meet the needs of its constituents over the long haul.
We've gotten a lot of feedback from donors asking us "How much is too much?" in regards to CEO salary. According to our data the average CEO salary is $162,000. That said, it is important to note that this average encompasses a huge range of salaries, including one charity that pays its top executive close to one million dollars and several charities that have unpaid CEOs. Our analysis uncovered the following differences in average CEO salaries:
- CEOs at educational (average compensation of $238,127) and arts ($209,231) charities are at the top of the spectrum;
- leaders at animal ($113,061) and religious ($99,536) charities are at the bottom of the spectrum;
- charities in the northeast tend to pay the most ($190,955); and
- non-profits in the mountain west pay the least ($136,984).
Thus, Charity Navigator's data shows that while there are certainly some charities that overpay their leaders, these organizations are the minority. You should be concerned by an underperforming charity that pays its top executive more than the industry average, but one could argue that you should be less concerned if the charity is outperforming its peers. Remember that these executives must juggle the needs of a myriad of constituents, meet the goals of their charitable missions and possess savvy business skills. Obtaining and retaining such talent requires a certain level of compensation.
Our data dispels the myth that the charitable sector is full of unscrupulous organizations. The proof is in our ratings with nearly 70% of the charities receiving at least a three-star rating. Of course, our data also shows that not all charities are equal. Over 17% of the charities ran an average deficit in their past three to five fiscal years and 8% of the charities we've evaluated allocated less than 60% of their budgets towards programs. However, the American public should not be skeptical and cynical of the charitable sector. Instead, donors who take the time to research their philanthropic endeavors and find a charity that has demonstrated its efficiency at managing their dollars can reasonably expect that their hard-earned donation will be spent wisely, efficiently, and effectively.