Foundation Expenses Tied to Operating Style
New Report Analyzes Foundations' Administrative Expenses, Compensation
New York, N.Y., July 18, 2005—With federal legislation affecting nonprofits and foundations expected later this summer, a timely study of the expense and compensation patterns of the nation's 10,000 largest grantmaking foundations will inform the policy debate. It finds that 28 percent of these grantmakers report no administrative expenses related to their charitable activities and 66 percent do not pay any compensation for these tasks. Yet among those that report expenses or pay staff or trustees, expense patterns vary widely.
"Foundation Expenses and Compensation: Interim Report 2005," issued by the Urban Institute, the Foundation Center, and GuideStar, documents the dimensions of foundation expenses and reveals that major differences in foundations' operating styles have a great impact on their expense levels. Employment of paid staff, for instance, has the most significant effect on operating costs; international giving proves more expensive than local or national giving; and direct charitable activities, such as operating a facility for nonprofit programs, costs more than grantmaking alone. The findings suggest that, along with type and size, a foundation's mission and program goals are important factors to consider when analyzing its charitable expenditures.
The study looks at the 10,000 largest independent, corporate, and community foundations by giving in 2001. These foundations represent just 16 percent of U.S. foundations but account for 78 percent of all foundation giving, or $24 billion in 2001. The initial findings focus on charitable expenses as a percentage of qualifying distributions (those that count toward federally stipulated payout levels) for the 8,876 independent foundations in the sample and on compensation levels for all foundation types.
Key Findings:
Charitable Operating and Administrative Expenses of Independent Foundations
- Administrative expenses represented 7 percent of independent foundations' $21.2 billion of qualifying distributions; grants accounted for 90 percent.
- Expense ratios ranged from less than 5 percent of qualifying distributions (for 84 percent of unstaffed and 41 percent of staffed foundations) to more than 50 percent (for a handful of staffed foundations).
- Only one-quarter (2,350) reported having paid staff; among these, the largest spent proportionally less on administrative expenses, suggesting that they enjoy economies of scale.
- International giving costs more than domestic giving for foundations of all sizes, yet median expense ratios declined with giving levels, from 23 percent for funders giving less than $500,000 to 11 percent for those giving more than $50 million.
Key Findings: Foundation Compensation
- Of the foundations that provided compensation for charitable activities, the median percentage of compensation to giving was higher for independent and community foundations (roughly 5 percent) than for corporate foundations (nearly 2 percent).
- The largest foundations tended to compensate at the highest levels for all activities; yet their median percentages of compensation to giving ranked among the lowest.
- The median compensation of the 1,009 paid executive directors, presidents, and chief executive officers was $100,209 and ranged from a median $50,000 in the smallest foundations to $200,000 in the largest.
- Among foundations' 46,526 individual trustees, 7,140 (most of them in independent foundations) were compensated, with median compensation of $7,750. Compensation ranged from reimbursement of incidental expenses to payments exceeding $100,000.
The principal investigators for "Foundation Expenses and Compensation: Interim Report 2005" are Elizabeth Boris, director of the Center on Nonprofits and Philanthropy at the Urban Institute, and Loren Renz, vice president for research at the Foundation Center. Mark Hager, a senior research associate at the Urban Institute, is a coauthor. The report is based on 2001 data culled by GuideStar and the Foundation Center from Internal Revenue Service Forms 990-PF and 990, supplemented by survey data from the Foundation Center.
A final report, to be released later this year, will analyze additional operating characteristics, such as staff size and the number and size of grants. It will also examine factors that influence expense levels at corporate and community foundations.
"Foundation Expenses and Compensation: Interim Report 2005" is available on the web sites of the Urban Institute, the Foundation Center, and GuideStar. Project funding was provided by the Charles Stewart Mott Foundation and the Ford Foundation.
The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance challenges facing the nation.
The Foundation Center's mission is to strengthen the nonprofit sector by advancing knowledge about U.S. philanthropy.
GuideStar is a public charity that connects people with information about the programs and finances of more than 1.5 million IRS-recognized nonprofits.
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