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Operating Style Key Factor in Foundation Expenses

(Aug. 1, 2005) A new study of the expense and compensation patterns of the 10,000 largest grantmaking foundations in the United States suggests not only that there are vast differences among these entities, but also operating style may be the most critical factor in determining and explaining such expenditures.

The study, 'Foundation Expenses and Compensation: Interim Report 2005,' was issued by the Urban Institute, the Foundation Center and GuideStar. It examined the 10,000 largest independent, corporate and community foundations by giving in 2001. This group collectively represented just 16 percent of all foundations, but accounted for 78 percent of all foundation giving.

The data in the study suggests that while type and size remain important factors, a foundation's mission and program goals are also critical in considering and analyzing charitable expenditures. For example:

  • Employment of paid staff had the greatest impact on operating costs.
  • Direct charitable programs, such as operation of a charitable facility, were more expensive than strictly grantmaking programs.
  • International giving has greater costs than a local or national giving program.

Administrative Expenses and Foundation Compensation

The findings in the interim report focus on charitable expenses as a percentage of qualifying distributions (those that count toward the federally mandated payout levels) for the 8,876 independent foundations in the group and on compensation levels for all foundation types.

Administrative expenses accounted for just seven percent of independent foundations' $21.2 billion of qualifying distributions, while grants accounted for 90 percent. Expense ratios ranged from less than five percent of qualifying distributions (for 84 percent of unstaffed and 41 percent of staffed foundations) to more than 50 percent for a few staffed foundations.

Approximately one-quarter (2,350) of the independent foundations had no paid staff.

Of the 46,526 individual trustees involved in the group of 10,000 foundations, just 7,140 (most in independent foundations) were compensated. Compensation ranged from the reimbursement of incidental expenses to payments exceeding $100,000. However, the median compensation was $7,750.

The median compensation of the 1,009 paid staff leaders in the group (executive directors, presidents and chief executive officers) was $100,029. Compensation ranged from a median of $50,000 in the smallest foundation to $200,000 in the largest.

Of the foundations that provided compensation to board members and staff, the median percentage of compensation to giving was higher for independent and community foundations (about five percent) than for corporate foundations (almost two percent).

These findings are especially noteworthy as these two areas have been the subject of much Congressional scrutiny over the past year. Congress is expected to introduce formal legislation in September regarding various reforms of the charitable sector, and some measures related to foundation operations are expected.

About the Report

The interim report is based on 2001 data chosen by GuideStar and the Foundation Center from Internal Revenue Service Forms 990 and 990-PF, as well as from survey data from the Foundation Center. Project funding was provided by the Charles Stewart Mott Foundation and the Ford Foundation.

The final report, to be released later in 2005, will analyze additional operating characteristics, such as staff size and the number and size of grants, and will more closely examine factors that affect expenditures at corporate and community foundations.

The Urban Institute, headquartered in Washington, D.C., is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic and governance challenges facing the nation.

The Foundation Center, based in New York, works to strengthen the nonprofit sector by advancing knowledge about U.S. philanthropy.

GuideStar is a public charity in Williamsburg, Va., that connects people with information about the programs and finances of more than 1.5 million IRS-recognized nonprofits.

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