How would you feel if a charity you donate to spends 40% of its revenue on overhead?

[Laize]

Not long ago I would have been appalled. Then I saw a TED talk by a man named Dan Pallotta.

He explained why overhead is a terrible metric to use when judging a charity. Being a businessman myself, the context he put the whole paradigm in made a lot of sense as well.

Here's the video.



Basically it boils down to the fact that a nonprofit organization is still a business. They still need to advertise to get their message out and draw in new donors. So it's okay if they spend donation money on marketing and six-figure CEO salaries (provided they can afford it).

In plain terms, without encouraging the nonprofit company's growth, an organization may remain on the scale of a local bake sale... where 99% of the revenue goes directly to the cause, but that 99% is out of a couple hundred dollars. Meanwhile, a much larger organization might only spend 60% of its revenue directly on the cause, but that 60% is from $100 million in revenue. Which of these two groups is providing more aid to their respective cause?

Even if you look at REALLY large organizations like the Red Cross (who spends upwards of 90% of their revenue on their cause) it still makes sense. It makes sense because they're so large. When was the last time a super-large organization like Samsung or Microsoft had to advertise to encourage growth or brand awareness? Never, that's when. They advertise for new products and that's it.

They're also capable of taking advantage of economies of scale. A $300,000 CEO salary is a fraction of a fraction of the budget for the Red Cross. The 10% they keep for overhead is capable of running a substantial organization, while a smaller company might need a larger share to stay afloat. I also see nothing wrong with someone earning six figures as the head of a nonprofit. Why shouldn't someone make a great living helping people?

This is my take on nonprofit charities. What's yours?

[Noomz]

Not long ago I would have been appalled. Then I saw a TED talk by a man named Dan Pallotta.

He explained why overhead is a terrible metric to use when judging a charity. Being a businessman myself, the context he put the whole paradigm in made a lot of sense as well.

Here's the video.



Basically it boils down to the fact that a nonprofit organization is still a business. They still need to advertise to get their message out and draw in new donors. So it's okay if they spend donation money on marketing and six-figure CEO salaries (provided they can afford it).

In plain terms, without encouraging the nonprofit company's growth, an organization may remain on the scale of a local bake sale... where 99% of the revenue goes directly to the cause, but that 99% is out of a couple hundred dollars. Meanwhile, a much larger organization might only spend 60% of its revenue directly on the cause, but that 60% is from $100 million in revenue. Which of these two groups is providing more aid to their respective cause?

Even if you look at REALLY large organizations like the Red Cross (who spends upwards of 90% of their revenue on their cause) it still makes sense. It makes sense because they're so large. When was the last time a super-large organization like Samsung or Microsoft had to advertise to encourage growth or brand awareness? Never, that's when. They advertise for new products and that's it.

They're also capable of taking advantage of economies of scale. A $300,000 CEO salary is a fraction of a fraction of the budget for the Red Cross. The 10% they keep for overhead is capable of running a substantial organization, while a smaller company might need a larger share to stay afloat. I also see nothing wrong with someone earning six figures as the head of a nonprofit. Why shouldn't someone make a great living helping people?

This is my take on nonprofit charities. What's yours?

It's the reason I actually DON'T donate to such charities.

[Xeones]

300k salary for a nonprofit organization? No thanks.

[Laize]

Money begets money.

Their goal should be to maximize the income they have to put towards the actual charity.

Indeed. I see no problem with someone earning 6 figures for helping people. Nor do I see a problem with an organization spending 40% of their revenue on overhead provided they sustain growth and are capable of helping more people than smaller organizations who spend much larger percentages on the cause.

How many people can a $1000 bake sale help?

[Xanjori]

I dont see how you work out you deserve a 6 figure salary when working for a charity. That puts you well into the realm of luxurious living, why not stop at $50k a year where you can live more than comfortably? By going up you are literally just taking advantage of how much money is being put on your table.

[Laize]

I dont see how you work out you deserve a 6 figure salary when working for a charity. That puts you well into the realm of luxurious living, why not stop at $50k a year where you can live more than comfortably? By going up you are literally just taking advantage of how much money is being put on your table.

The organization requires quality talent for running it. It is a business after all.

An executive who only commands a $50,000 salary is one of... dubious talent.

I wouldn't expect a whole lot from an executive who only earned $50,000... just like I wouldn't expect very much from a professional football player who only earned $50,000.

[Deleted]

I'd be confused why i was donating to charity when i don't have much spare cash

[Rhywolver]

Something true I heard a while ago (also true for several similiar organisations):

"Every year without a disaster is a disaster for the Red Cross"

[Xeones]

The organization requires quality talent for running it. It is a business after all.

An executive who only commands a $50,000 salary is one of... dubious talent.

I wouldn't expect a whole lot from an executive who only earned $50,000... just like I wouldn't expect very much from a professional football player who only earned $50,000.

This is bull shit. Taking a big salary is just taking a big salary. People who go into charity shouldn't be in it for the money. If I donate to a charity it's for the charity, not the charity of "gimme money and I might help some people while I use your money to live better than you do".

[Yunru]

The problem with the charity is that they are doing it WRONG.

They are one company and under strick rules....what they should do is this:

A)company a = all the money that is donated gets to good cause
B)company b = this organization sells shirts, and other stuff and pays the advertising for the company a = no money lost. Of cose they get hit by a tax....but company a will not. This allows the company to grow as much as it wants.

Lets say i open a resturant. Prices are higher than usualy. 3 dolar cola splits like this: 1 dolar goes to charity /1 dolar goes to comany / 50 cents are taxes / 50 cent is the industriul price of cola.

For every 100 cola sold i have:
100 dolars for the poor
100 dolars to pay workers and advertising
50 dolars goes to contry
50 dolars goes to other industriual sectors

Church kinda works that way.

[Laize]

This is bull shit. Taking a big salary is just taking a big salary. People who go into charity shouldn't be in it for the money. If I donate to a charity it's for the charity, not the charity of "gimme money and I might help some people while I use your money to live better than you do".

That's the paradigm we currently live under.

If you watch the video, Pallotta points out the problem with that view.

What you wind up with is people who WANT to go into business to help others... but the best way for them to do that is to become an officer in a for-profit company, earn truckloads of cash and sit on the board of a charity... where they then tell some schmuck earning $50,000 what to do.

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You may need to pay a big salary to someone who is in it for the money, but if the CEO claims to genuinely want to help people, they should be OK with reducing their pay to have more to put towards the cause or the acquisition of funds for the cause.

Or you know, they may actually turn around and donate some of their earnings to charity.

[Darsithis]

This is bull shit. Taking a big salary is just taking a big salary. People who go into charity shouldn't be in it for the money. If I donate to a charity it's for the charity, not the charity of "gimme money and I might help some people while I use your money to live better than you do".

Why? The people running a charity are still people.

One of our longtime clients is a non-profit that operates schools and facilities for children and disabled adults. The people that work there, that have to clean, teach, handle unruly children and adults and those who have to administer, secure funding, run the facilities and make company-wide decisions deserve to have pay commensurate with their position. How else do you attract people to the job? Sure there are people willing to get paid less but being a charity doesn't mean they should pay minimum wage to everyone. What matters more is the difference they're making in the community.

[Tastyfish]

I gave up with that shit long ago.
It's too fishy donating to national charities. You end up thinking you are doing good and they end up supporting prop8 with my money.
I decided to work with Food not Bombs and other local centric things over shit like the Salvation Army.
Helping the poor or low income folks shouldn't be a racket, should be totally blind.

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I dont see how you work out you deserve a 6 figure salary when working for a charity. That puts you well into the realm of luxurious living, why not stop at $50k a year where you can live more than comfortably? By going up you are literally just taking advantage of how much money is being put on your table.

It's a weird thing.
The top has 6 figures and the bottom relies on volenteers who gain social standing/ feel better about helping the org for free... it can be a weird set up at times.

[Darsithis]

I gave up with that shit long ago.
It's too fishy donating to national charities. You end up thinking you are doing good and they end up supporting prop8 with my money.
I decided to work with Food not Bombs and other local centric things over shit like the Salvation Army.
Helping the poor or low income folks shouldn't be a racket, should be totally blind.

It's a weird thing.
The top has 6 figures and the bottom relies on volenteers who gain social standing/ feel better about helping the org for free... it can be a weird set up at times.

You can always research the charity ahead of time.

As for volunteers, the charity we work with pays volunteers a working wage anyway. They have a small budget set aside for it, but once that runs out, it runs out and volunteers are unpaid.

[Pitkanen]

CEO's of massive charities like the Red Cross are no different than college Chancellors. Their primary purpose is to bring in money for their institution, and if the extra pay they get brings in substantially more money overall than their pay then overall the institution benefits.

If a guy is qualified to run and fundraise for the Red Cross as a CEO, he undoubtedly taking a huge pay cut already compared to private sector work where he could easily make millions considering his experience. The question of whether the CEO should be willing to drop down to a specialist doctor or a metermaids wages...

[Endus]

I dont see how you work out you deserve a 6 figure salary when working for a charity. That puts you well into the realm of luxurious living, why not stop at $50k a year where you can live more than comfortably? By going up you are literally just taking advantage of how much money is being put on your table.

"Non-profit" does not mean "we're all volunteering of our own free time". The employees of the non-profit are employees, like any other, and need decent salaries to attract qualified people. There is nothing about being a charity or non-profit that requires that the employees not be well-compensated for their efforts. All being a non-profit means is that all the funds collected above overhead are used in pursuit of their cause; there are no "profits" paid out to "shareholders", nor megabonuses for CEOs, or the like. Having a bumper collection year means you do more stuff, not that anyone makes more money.

I volunteer with my local Food Bank, and while there are a lot of volunteers, there's also paid staff, who are paid well. Because the system can't work without a core of paid employees.


That doesn't mean there aren't problematic charities. I once got suckered into a job as a telephone representative for charity donations, in college, and it took me a few months and some digging to find out that some of the charities (not all; they also did stuff for the local police and fire depts and such) were created by the parent company. As they controlled both, they could effectively set the rates on the telephone collections; where most charities would be paying the telemarketing company 5-20% of the intake, these were paying 95%. For every $20 donated through our phone lines, $1 went to the actual charity. So never give over the phone. If you think the charity sounds good, take their info, find them yourself, and donate directly.

[Tastyfish]

You can always research the charity ahead of time.

As for volunteers, the charity we work with pays volunteers a working wage anyway. They have a small budget set aside for it, but once that runs out, it runs out and volunteers are unpaid.

OH wow that is very rad.

[Pitkanen]

To add to Endus's warning about telemarketers...

"Text'ing" a donation is nearly as bad. And really any really small donation amounts, as the banks/credit cards/phone companies... whoever is involved usually gets a flat amount of whatever is given per transaction. There are some methods of payment that don't get a haircut from the "service providers", but they are rare.

[Xeones]

Why? The people running a charity are still people.

One of our longtime clients is a non-profit that operates schools and facilities for children and disabled adults. The people that work there, that have to clean, teach, handle unruly children and adults and those who have to administer, secure funding, run the facilities and make company-wide decisions deserve to have pay commensurate with their position. How else do you attract people to the job? Sure there are people willing to get paid less but being a charity doesn't mean they should pay minimum wage to everyone. What matters more is the difference they're making in the community.

The people who are actually doing that aren't the people who are getting 6 digit pay, they are people who are probably making reasonable to low pay.

What I responded to is specifically him saying they needed hundreds of thousands to get "talent" all that term does is bring up bad memories of the banks needing tax payer money for bonuses to keep the "talent" that performed illegal and immoral actions that destroyed the economy.

What "talent" does a non-profit need hundreds of thousands to obtain and keep? I highly doubt they have an inhouse marketing team.

[Deleted]

Basically it boils down to the fact that a nonprofit organization is still a business.

And that's exactly what I don't agree with. You can't take the best of both worlds.

Either you're a nonprofit organization that hopes to achieve the set goals based on the good will of the people involved, or you're a business out to make money. You can't have the best of both worlds. If you want to make a lot of money in order to better advance your goals, just be a business and don't fool the people. (this is what I think most charities should do)

I have absolutely zero sympathy for charities that play on the emotions of the general population to ask for donations and just use that money to pay their CEO. In fact, playing on people's emotions to make a lot of money yourself is probably the most evil thing I can imagine. I find it worse than any dictator, terrorist, mass murderer or rapist.

I hope all CEOs of charities die in a fire. The very name 'charity' is misleading as well, since it implies it is meant for a good cause. But I don't think the bank account of a CEO is a good cause at all. Do you know how many charities there are in just my country of 16.5 million people? Yeah, 3000. Why? Because it's easy money by fooling chumps.

Heck, I have asthma myself and I don't give their charity a single coin if they ever come collecting at my door. F*ck them.
Cancer? Aids? Natural disasters? I don't give a f*ck. A lot of money always ends up in the wrong pockets and I'm not willing to let that injustice stand.

Do you remember the Tsunami of 2004? Yeah, 1 billion of the total amount of money meant to help those people has gone missing. I do have my ideas where that money went to though. Someone filled his pockets through the good will of the people donating. Seriously, it's fucked up. It's just sick that someone can live with himself like that. If that is not true evil then I don't know what is.

PS: If anyone is out to make a lot of money, just start a bank or a charity.