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Five Charity Myths Dispelled

by Andrew Heck, Charity Navigator

July 1, 2007


As part of our mission to provide donors with the information to make intelligent giving decisions, we shatter some commonly-held myths about charitable giving.

Myth 1: Charity executives are overpaid.
While there certainly may be some charity CEOs that are overpaid, just as there are some corporate CEOs, doctors, lawyers, and truck drivers that are overpaid, most charity leaders earn a salary that is commensurate to their talent, experience, and education. According to our analysis, the average nonprofit CEO's compensation (for the 5,054 charities in our database as of September 2006) is $141,947. This means that, on average, 3.4% of a charity's spending goes toward CEO pay.

Many of these charities are complex organizations, with multi-million dollar budgets, hundreds of employees, and thousands of constituents. Most charity executives could inevitably make much more running similarly sized for-profit firms. Charities provide vital, life-saving tasks such as providing food, collecting and distributing blood, and providing medical care. In order to attract the kinds of executives that can provide the leadership these organizations need, charities must offer a competitive salary.

Donors should also take into account that not all of a CEO's pay is considered "overhead." Charity executives perform a variety of functions from carrying-out services directly related to a charity's mission to fundraising and administrative tasks. Furthermore, before donors make any judgments about salaries higher or lower than average, they should take into account both the size of the charity and its performance. A CEO making less than $50,000 at an organization with a small total budget or that spends a small percentage on programs may actually be more "overpaid" than a CEO earning more than $200,000 at a large, efficient organization.

Myth 2: After a natural disaster, charities need old clothes.
After a large, catastrophic natural disaster such as an earthquake or hurricane many donors and communities rush to organize massive clothing drives to assist the victims. While these donors undoubtedly have their hearts in the right place, most charities have no use for these donations. According to a USA Today article published shortly after Hurricane Katrina "Relief agencies dread the influx of clothes that inevitably follows a disaster. It takes time and volunteers to sort the items and dispose of things that are unwearable."[1] Charities prefer donations of cash that they can use to purchase needed supplies. In addition, the local economy benefits if disaster victims are provided cash or vouchers to purchase clothing from local merchants rather than given donated clothing. The next time disaster strikes and you want to organize a neighborhood or community-wide effort to help, consider having a bake sale or group yard sale to raise money for the victims.

Myth 3: You can judge a local charity based on a national name.
Some large, national charities, such as the American Red Cross and the American Cancer Society have local affiliates but operate as one, unified organization. Many other charities, such as Habitat for Humanity, Goodwill, and the American Lung Association, are operated as local chapters independent from the national organization. For example, while Habitat for Humanity of Dane County in Madison, Wisconsin is an excellent, 4-star organization, Habitat for Humanity Greater Boston is a largely inefficient charity. Before donating to any charity based on its national name recognition make sure and check out the efficiency of the chapter in your local area.

Myth 4: Excellent charities spend 100% of their budgets on program services.
Donors should only donate to charities that will spend their money efficiently, however no charity is able to operate effectively without allocating at least a portion of their resources towards generating new funds and supporting the infrastructure that makes their activities possible. Any charity that claims to spend 100% of your donation on programs should be looked at with a critical eye.

Some charities will claim that their fundraising and overhead is paid for by other means such as a foundation grant or a generous donor, so therefore 100% of your donation will be spent on programs. This claim, however, does not absolve them from the need to carefully allocate how they spend their resources. Consider, for example, the analogy of a child who is given a $5 bill by his parents on the stipulation that he is not allowed to spend the $5 on candy. Later, the child's mother catches him with $5 worth of candy. When asked about this the child replies that he did not spend the $5 his parents gave him on candy, but instead spent $5 in birthday money from his grandmother on candy. While he technically obeyed the wishes of his parents by not spending the $5 bill they gave him on candy, he still spent 50% of his income on candy, which was probably not optimal in the eyes of his parents. Even charities that do not spend individual donor dollars on fundraising or administrative costs need to efficiently allocate their resources as a whole.

Myth 5: A good way to support charity is to participate in a special event or buy a special product.
While attending a charity gala, participating in a fun run or golf tournament can provide a charity with additional revenue the best way to support a charity is with a direct contribution. Charity Navigator's recent special events study found that "on average, the charities we studied spent $1.33 to raise $1 in special events contributions, compared to an average overall fundraising rate of $.13 to raise $1." While some charities' special events are more efficient than others, donors should not assume that by participating in or attending a charity event that they have provided an effective means of support for that organization.

As with attending a special event, purchasing a product that promises to donate a portion of the proceeds to charity can also benefit a charity, but not as much as a donation straight to the charity. Before purchasing a product that promises to benefit charity, donors should always read the fine print and find out what portion of the proceeds go to charity and if there is a cap on the total donation a company will make to charity.

[1] Moore, Martha T. "Cities bursting at seams with excess used clothes." USA Today 22 September 2005.

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