What’s (not) wrong with donating to the ALS association?

The ALS ice bucket challenge has taken most of the internet by storm. I too have contributed to the ice bucket challenge after being nominated by no less than three of my friends. The ice bucket challenge has been a great way to increase awareness of ALS and the amount donated to the cause. A comparison of the donations over the same period this year versus last year reveals the incredible impact that the ice bucket challenge has had thus far. However, as popular things go, there have also been criticisms levied against the ALS Association. The two main criticisms that I have read pertain to 1) “less than 27% [of donations] is actually used for the purpose that we donate for” and 2) “Employee salaries at the ALS Foundation are out-of-this-WORLD [sic].” (http://politicalears.com/blog/ice-bucket-fraud-als-foundation-admits-that-73-of-donations-are-not-used-for-als-research/)

While it still confounds me as to why someone would criticize a nonprofit organization like the ALS Foundation, I felt compelled to bring up some points to refute the criticisms before they get spread further. The first is that “over 73% of all donations raised are going to fundraising, overhead, executive salaries, and external donations.” Let’s examine the year-end expenses of the ALS Foundation and see how true this statement is.

(http://www.alsa.org/about-us/financial-information.html)

A review of the ALS Association expense statement (rounded) from the annual report reveals that while 27% of expenses is spent on research, a further 19% is on patient and community services and 32% is on public and professional education, all of which is covered by the organization’s mission. Only 21% of the organization’s expenses are spent on Administration and Fundraising. One then wonders, is 21% is high percentage to spend on overhead, or is that low? To answer that question, I took a look at charity rating sites to get a baseline of where ALS Association stands in comparison with other nonprofit organizations. From Nolo.com, “CharityWatch.com says that it’s reasonable for most charities to spend up to 40% of their budget on operating expenses — in other words, at least 60% should go to programs, and 40% should go to everything else. However, charities that spend less than 40% get higher grades from CharityWatch, with those spending 25% or less on operating expenses receiving the highest “A” grades. Charity Navigator, which employs a sophisticated rating system, gives bonus points to nonprofits with lower operating expenses. Most nonprofits who spend more than 30% of their budget on overhead get no bonus points. The Better Business Bureau says that no more than 35% of a nonprofit’s budget should be spent on operating expenses.” (http://www.nolo.com/legal-encyclopedia/reporting-nonprofit-operating-expenses.html). Based on CharityWatch and the Better Business Bureau’s assessment of charity overhead expenditures, ALS Association’s 21% spent on Administration and Fundraising seems pretty good.

The second argument that I’ve read is that ALS Association salaries are “out-of-this world.” The salaries listed for their C-level positions range in the low-100k’s to the low-300k’s. Is that really an “out-of-this-word” salary? I would argue that the C-level salaries afforded to the executives at ALS Association are actually low compared to corporate salaries and in line with other nonprofit organizations. In fact, the compensation at ALS is more similar to mid-level corporate manager/director levels, not C-level positions, that I have seen in my experience as a consultant. Comparison to the private sector is even more stark at the CEO level. “The 2007–2010 financial crisis drove executive pay down somewhat, but it had begun to recover by 2010. The average pay for the chief executive of an American publicly traded company fell from $15.1 million in 2007 to $10.1m in 2009, but was back up to nearly $12 million in 2010 according to research firm GovernanceMetrics.” (http://en.wikipedia.org/wiki/Executive_compensation_in_the_United_States) In comparison, the President and CEO of ALS Association makes a paltry $330K (estimated). It’s odd to think that the C-level folks at the ALS Association are compensated, as some would put it, “out-of-this-world.”

I think the more poignant question here is, why do we judge nonprofits by the way they spend money rather than the outcomes that they attain? I would argue that the use of overhead percentage to determine how “good” a nonprofit is actually detrimental to the achievement of a nonprofit’s mission. Imagine running an organization but being hamstrung by the inability to pay your staff a level of salary that is commensurate to their skill and experience. How long can you rely on a person’s dedication to the organization, mission, and cause before economics takes over as the main influence of their choice of employment? Let’s give nonprofit organizations the resources that they need to operate efficiently and effectively rather than insisting on a bare-bones operations. Instead of focusing on overhead percentage, donors should judge organizations by the cause that they benefit and the outcomes that they've achieved.

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