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Nonprofits: Overhead is Not a Four-Letter Word

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I am quite certain that those who scoff at nonprofit salaries after reading salary surveys would be beside themselves if they found out what the average nonprofit professional is paid, not to mention the hours they keep to earn that miniscule sum.

by Shoshanna Jaskoll

Nonprofit salary surveys are evil things. Not only are they often skewed and inaccurate, they always focus on the few CEOs and execs who seem to make outrageous sums of money. No one ever discusses the tens of thousands who work for far less than they should, shouldering far more than should be expected.

Are there some nonprofit heads working within the third sector who are paid beyond what most of us feel is necessary? Absolutely. But they are far from the norm or even the majority. I am quite certain that those who scoff at nonprofit salaries after reading salary surveys would be beside themselves if they found out what the average nonprofit professional is paid, not to mention the hours they keep to earn that miniscule sum.

Thanks to these misleading posts and surveys about nonprofit salaries, the entire sector gets a bad rap and is seen as ‘bloated’, ‘inefficient’, and ‘wasteful’. The irony is that organizations are eating away at their own sustainability because they are so very concerned with budgets, spending, and the perception of them, that they are unwilling to invest in themselves.

It sounds crazy, but it’s true. In the third sector, ‘overhead’ is a four-letter word.

As a result, nonprofits do as much as possible as cheaply as possible (legal advice from a brother-in-law, translations by a friend, etc.) and their professionalism goes down the tubes. This, in turn, results in decreased efficiency overall, the loss of major donations and further struggling.

The fact is that nonprofits need support, love (unconditional love), and to be reassured that they can spend the money necessary to meet their goals … and bring in more money.

When a house is built on the cheap – bad insulation, crummy pipes, subpar architecture – the owner spends the first 10 years (if not longer) preoccupied with fixing the broken elements, from the foundation all the way to the roof. And it’s the owner and those who depend on him who suffer. Had he insisted on the highest quality materials and skilled labor from the very beginning of the construction process, the home would be a sound and safe structure, his family warm and secure within it.

Nonprofits are no different. The basic elements of these organizations – both the materials and the manpower – must be of the highest quality from the very beginning. If not, they will always be focused on plugging organizational leaks and mending their cracked foundations, rather than turning their attention towards growth and the advancement of their causes.

So, it is a big problem when the few who are overpaid within the nonprofit sector are seen as its poster children. Everyone else, namely the vast majority of the nonprofit professionals who are grossly underpaid suffer, and the issues surrounding quality, professionalism and sustainability persist.

Unlike those who feel the answer is to take from the CEO to give to the professionals, I do not believe that is the solution. I don’t think it is reasonable to request that CEOs of nonprofits – who are usually undervalued and unappreciated themselves – hand over a chunk of their salaries to the various employees they oversee.

A far better solution would be encouraging proper and sound investment in those organizations. We must allow nonprofits (read: give them the operational freedom) to utilize the highest quality equipment, services and solutions to make the overall organization more sustainable.

In addition, collaborations between nonprofits should be encouraged and nonprofit professionals should be given quality professional training courses. It would only make sense that private businesses and government offices lend a hand to make this a reality.

We must insist on far more cooperation between the sectors. All businesses and individuals should be supporting their local and national nonprofits, rather than suspecting them.

Yes, transparency is key. But supporters of nonprofit organizations need to stop “nickel-and-diming” them about the services they buy. They must stop asking them to lay a faulty foundation for their homes.

Overhead must stop being seen a four-letter word. Let’s change ‘overhead’ to ‘infrastructure’, and see the perceptions change almost automatically. After all, what donor wouldn’t want to support a strong and sustainable organizational structure that is committed to and capable of meeting its goals?

Shoshanna Jaskoll is the co-producer of AMUTA21C, an annual summit focused on bringing together Israel’s nonprofit and business professionals in an effort to create connections, showcase opportunities, and raise operational standards across the third sector. This year’s summit will take place on Tuesday, June 24 at the ZOA House in Tel Aviv.

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Comments

  1. shoshanna – very good. but….do you agree that there is a difference between “high quality work at a fair price” and “high quality work at an exorbitant price”? that is my problem with everyone who says “don’t look at overhead” and the like. overhead IS important. if it is reasonable, fine. when it is unreasonable, then no, you will not get my donations nor my stamp of approval.

  2. Overheads shold be reasonable, as should be the expectations from the staff. Part of the problem in Israel is actually that many NPO’s don’t know how to show what really goes into the projects. More project management would allow for overheads to be presented properly…

  3. Arnie-

    Smart, efficient, responsible.

    Give me an example of exorbitant to you. And I never said, don’t look at it, on the contrary, make sure it is enough to sustain the org, not drown it via waste, or starve it via hunger.

    make sense?

  4. I’d like to add, Arnie what in your mind is fair compensation for an experienced CEO, or ED, of an amuta with a NIS 1 million budget?

    NIS 100 million budget?

  5. shoshanna –

    a) you wrote: “make sure it is enough to sustain the org” – that could mean 5% or 10% or 40% or 80%. so, no, i don’t accept that as making sense. sorry.

    b) 15% or less overhead – true overhead – is acceptable to me. 10% should be the goal. places with 17% or 26% or more, just don’t cut it. (i don’t mind giving them a year to get in shape and then working with them if they do!).

    dan – staff should be paid within “normal” israeli salary range (and not what bank execs or knesset members make). so, makes no difference to me if the org is big or small, the salary “cap” should be under 20,000NIS a month. a lot goes into figuring out what is appropriate for one org versus another, but in general, that is the number, and see comment ‘b’ above about how that number relates to the rest of the org’s budget.

  6. Arnie,

    Even if your theoretical point were agreeable, your absolutism when you declare actual numbers, not to mention the numbers you choose, negates it.

  7. jonny – my point is not theoretical. it is practical. and many many foundations and philanthropists agree. i am not sure how you can argue for higher overheads and salaries and still be true to the big tzedakah picture.

  8. What Jonny said. Also, it sounds like we are treating social sector professionals as children, and if we do, we will lose talented, motivated, innovative people. I cannot address the ‘salary cap’ in polite words so I’ll leave it at this. If salaries of heads of social change organizations are capped at 20KNIS, you will continue to have a stinted, stagnant ‘nebach’ sector. The whole notion of ‘you’re being capped’ smacks of distrust and negativity, the opposite of what a flourishing social sector needs. There are other ways to ensure responsible behavior.

  9. Arnie-

    The statement that being pro fair salaries and solid infrastructure is in contradiction with Tzedakah is absurd. I want to invest in something that takes itself seriously, values its employees, and looks at the long term. A well structured org that thinks of collaborations, opportunities and best practices to be effective. Not an org where all the workers are so busy trying to feed their own families that their creative energies are spent looking for new work. You cannot be so absolute and think that it contributes to advancing the sector.

  10. Why is 10% a goal? The justifiability is the issue. I am in an organization that boasts its 10% but which has STRUGGLED because of that.

  11. shoshanna…..i am very much in favor of “fair salaries and solid infrastructure” – i am very much against what some people think is fair and is actually high, and what some think is solid and is actually inefficiency. and i will even go one further…..if a non-profit can’t be run effectively and efficiently on 10% – 15% admin and can’t pay fair salaries (yes, 16,500NIS a month is a fair salary) and can’t have a solid infrastructure, then it shouldn’t exist. (and there are many non-profits i have advised to close and seek other ways accomplishing what they want to accomplish – maybe merge with someone else, for example.

  12. joe,

    if i may: in your organization, maybe 12% is the magic number. if a donor understands that 10$ is struggling and 12% is ‘right’, then i think you will get them on your side. but if you need 19% to make it ‘right’, that is a tougher sell, in my book.

    in general, i have found that for any non-profit field of endeavor (feeding hungry people, working with immigrants, working with elders, working with kids at risk, etc.), i can find an organization that is both efficient and effective. so why would i recommend to a donor to give to ‘x’ which spends 19% when ‘y’ is doing just as good (or better) at 12%?

  13. Partially Arnie, as I have argued with you before, when you compare two organizations and how they are operate you are almost never comparing apples to apples. Therefore comparing % of overhead is not a fair gauge of efficiency and certainly not of effectiveness.

  14. dan – when i review a non-profit, overhead is just one piece of a very complicated puzzle. so yes, it is rarely apples to apples in that sense, but in general, if i want to feed hungry people, i know organizations that do it very well, very effectively, very efficiently for little or no overhead. wouldn’t i rather that my tzedakah shekels go there (where, say, 97% goes towards food) as opposed to somewhere else (where, say, 84% goes towards food)?

  15. Two Orgs to choose from: ORG A ORG B

    Helps teens at risk stay in school x x
    Has budget of $3M x x
    Runs programs for 1000 kids a yr x x
    Percentage of Budget to salaries/overhead 20% 9%

    Which do you give your money to?

  16. Arnie-

    But what if the other 13% is used on social workers who talk to and get the clients into employment training thereby doing far more than just feeding them?

    In addition, very few CEOs can work for free. I worked with one and he was impossible to pin down because he was always so busy. He made poor decisions because he had no time to do real research and had such a bleeding heart that he never said no to anyone, not even the guy who scammed us out of tens of thousands of shekels. He had very very little overhead, looked great on paper… I just cannot abide ‘overhead’ being the golden measurement. Its not in a vacuum.

  17. You and I had this specific discussion before; I presented two scenarios of two highly efficient organizations feeding the poor through two very different models. The difference was the one with higher overhead had scaled and reached significantly more people at the cost of higher overhead but less expensive cost per person served. My recollection is you chose the one with lower overhead. I know many who would have chosen the opposite. As my mother taught me, that’s why god made Fords and also Chevys.

  18. ok, first shoshanna:

    a) in your hypothetical situation of org a and b, the answer to your question is “neither”. i do not have enough information to know. i take my job and profession very seriously. it takes hours and hours to just begin to research a non-profit to know if they are even “eligible” to be reviewed properly!

    b) you wrote: “what if the other 13% is used on social workers who talk to and get the clients into employment training thereby doing far more than just feeding them” – that sounds a lot like program expenses to me and not overhead, no?

    c) no one should work for free (unless they choose to). you wrote “He had very very little overhead, looked great on paper.” – well, see my comment ‘a’ above. i do not judge a non-profit based on looks alone!

    dan – yes, fords/chevys and chocolate/vanilla, etc. but…..it is hard to say just from the examples. there are way too many variables. let’s look at the numbers: i can feed a person for “x” shekels per month. you can feed a person for “x-1” shekels per month. if that is the only criteria, then i donate to you. but since it is never black and white….

  19. Thank you Arnie for your last sentence – for it is [almost] NEVER black and white. Which is why constant talk of percentage numbers does the entire sector a significant disservice.

  20. and so….don’t publish articles with the word “overhead” in the title!!!!!! (and by the way….”overhead” is NOT a four letter word. it is TWO four letter words!)