Foundation Expenses - US Study

Described as the first comprehensive report on the factors affecting administrative costs at grantmaking foundations, this US study “cautions against constructing a ‘one size fits all’ approach to setting standards”.

“Foundation Expenses and Compensation: How Operating Characteristics Influence Spending,” issued by the Urban Institute, the Foundation Centre, and GuideStar in the US documents how a variety of characteristics influence expense levels at the 10,000 largest independent, corporate, and community foundations.

With grants of $US24 billion and $US372 billion in assets in 2001, these organisations accounted for 78 percent of foundation giving and 77 percent of foundation assets for the almost 62,000 grantmaking foundations active that year.

The report observes that “most foundations report modest expenses; the vast majority are un-staffed, and many are run largely by unpaid trustees.”

While a number of structural and program characteristics affect costs, staffing appears to be the most significant factor regardless of foundation type. Foundation size also proves to be important. The largest foundations tend to compensate at the highest amounts, but their median percentages of compensation to giving are among the lowest.

In addition, certain activities, such as international giving and operating a facility or research program, result in higher expenses than giving locally or only making grants to Not for Profit organisations.

The new report examines the impact of a broader range of operating characteristics on the spending patterns of independent foundations-such as staff size, scope of giving, foundation age, the involvement of family members, whether the foundation is endowed, and whether it awards grants to individuals.

The report also expands the analysis of expense patterns to corporate and community foundations, provides a first look at the composition of expenses of the three types of foundations, and offers new benchmarking tables that will enable staffed and un-staffed foundations to compare their expenses and compensation levels with foundations of similar size and type.

Key Findings: Operating Characteristics and Expense Patterns

– Of the 10,000 largest foundations, 30 percent reported no charitable operating and administrative expenses. Community foundations, nearly all of which employ staff, were most likely to report operating expenses. Corporate foundations, which are often staffed by company employees, were least likely.

– Staffing appeared to be the most significant factor influencing charitable operating expenses. Employment of paid staff significantly raises operating costs for all types of foundations.

– Among staffed independent foundations, charitable operating and administrative expenses ranged from less than 5 percent of qualifying distributions for 41 percent of the foundations to more than 20 percent for 14 percent; the median was 7 percent. Among un-staffed foundations, 84 percent fell into the 0-5 percent range, with a median of less than 1 percent.

– Foundation size emerged as another key factor. Larger givers reported lower expense-to-distribution ratios for a number of operating characteristics, suggesting greater efficiency as assets increase.

– The expense-to-qualifying-distribution ratio for staffed corporate foundations was lower than the ratios at independent and community foundations because parent companies often absorb foundation expenses.

– Important influences on expense levels of community foundations included staff size, direct charitable activities, and foundation age.

Key Findings: Foundation Compensation

– Sixty-six percent of the foundations studied did not compensate staff or trustees for conducting grantmaking and other charitable activities. Among the 3,388 that did, the median percentage of compensation to giving was higher for community and independent foundations (5 percent) and lower for corporate foundations (2 percent).

– Eighty-five percent of the 46,526 individual trustees serving foundations received no compensation. The vast majority of the 7,132 compensated trustees were associated with independent foundations, with most receiving less than $10,000 and 69 receiving over $100,000. Nearly 20 percent of independent foundation trustees received compensation, compared with only 3 percent of corporate foundation trustees and less than 1 percent of community foundation trustees.

– Compensation of foundation executives was strongly influenced by foundation size. Of the 2,923 foundations reporting paid staff, 1,005 listed executive directors, presidents, or chief executive officers. While the median executive salary was roughly $100,000, it was $200,000 at foundations with over $200 million in assets and about $50,000 at foundations with less than $10 million in assets.

GuideStar provided financial, expenses, and compensation data from the Internal Revenue Service (IRS). The Foundation Centre and the Urban Institute analysed the data and wrote the report. Project funding was provided by the Charles Stewart Mott Foundation and the Ford Foundation.

“Foundation Expenses and Compensation: How Operating Characteristics Influence Spending” is available on the web sites of the Urban Institute at: www.urban.org/url.cfm?ID=311281.