Top Philanthropoids Are Paid Over $600 Million a Year. Is That Too Much?

Not long ago, I wrote about the Ford Foundation's overhead expenses, pointing that it had spent over $1 billion in the past decade on personnel and office space. That's a shocking amount of money that never made it to poor people, starving artists, struggling students or others in need.

Still, I felt bad singling out Ford because its overhead expenses are not so unusual for legacy foundations.

And I got to wondering: How much money goes to philanthropoids—as opposed to grantees—at other big foundations? And what's the overall tab for the staff-intensive model of grantmaking that most of these behemoths embrace?

Well, here's the answer: Over $600 million a year, and that's just for staffing the top 10 U.S. foundations.

Now, before saying more about this big number, a few caveats: I don't generally have a problem with good salaries for nonprofit professionals. You shouldn't have to take a big financial hit for trying to make the world a better place, and competitive pay is needed to draw the best people into the social sector. Nor do I think foundations should have crummy offices in the Garment District or that program officers should have to stay at Motel 6 when they're on the road.

My problem is with how these big foundations do business, hewing to a top-heavy model from an industrial era where nobody thought twice about centralizing authority in lumbering bureaucracies. And, of course, I'm hardly alone in resenting the power that foundations have aggregated to themselves by muscling up with lots of staff and exercising control over nonprofits through an endless trickle of program grants that keep NGOs in a permanent state of semi-starved obeisance. This has been a source of festering anger for, well, decades now.

Many surveys and studies have documented the mismatch between the kind of support that nonprofits need (general, multi-year) and the kind of support many foundations provide (project), and we've reported on a number of calls for reform in just the past year, including from some funders themselves, like Paul Shoemaker.

We've also written often about newer or smaller funders on the scene that have embraced a "lean foundation" model—making bigger grants to fewer organizations. Quite apart from the issue of overhead cost, there's a compelling argument that such a strategy is more effective because funders can have more impact by better focusing their resources and placing bigger bets. As well, it seems clear that the nonprofit sector is too fragmented, with too many small and duplicative groups, and that the program support model perpetuates these inefficiencies.

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The issue of overhead costs, though, is an important one that deserves attention in its own right. That's because, obviously, money spent on staff sitting in glass offices in New York, San Francisco or Seattle is money not spent on the ultimate intended beneficiaries of philanthropy.

Which brings us back to the $600 million figure. Actually, the exact figure is $607.2 million that the top 10 U.S. foundations, as measured by assets, spent on board fees, salaries, and pensions in 2013. In turn, these staff costs comprise a bit over a third of the roughly $1.7 billion that these foundations spent in total on administrative and operating expenses, a category that includes many other things, such as travel and conferences, consulting, taxes, legal fees, and occupancy.

The personnel costs of the Gates Foundation accounted for over a third of that total, which is a reminder of just how big that place is. Here are all the numbers, with grants paid in parentheses.

Board and Staff Compensation at Top 10 U.S. Foundations, 2013

1. Gates - $243 million ($3.3b)

2. Ford - $74 million ($560.3m)

3. Robert Wood Johnon - $45 million ($337.5m)

4. MacArthur - $37.9 million ($218.5m)

5. Kellogg - $37.3 million ($294.9m)

6. Packard - $26.6 million ($295m)

7. Moore - $25.4 million ($272.3m)

8. Hewlett - $25.3 million ($240.1m)

9. Mellon - $16.3 million ($234.3m)

10. Lilly - $8 million ($270.3m)

(Note: I substituted Mellon for the J. Paul Getty Trust on this list, since the trust—the third biggget foundation by assets—isn't primarily a grantmaker.)

Again, don't forget that staff are only one chunk of total overhead. Also, these numbers actually understate how much foundations spend on personnel, since I'm not including consulting costs, which run into the tens of millions at some foundations. Those costs are hard to unpack, though, because external program activities are often lumped into those numbers, so it's not accurate to call them all internal staffing costs.

How else could some of that $600 million have been spent in 2013 to do good in the world? We can all imagine the ways.

To me, though, the big question is this: Was this money for staff well spent? By that, I mean: Did spending over $600 million to carry out grantmaking result in more impact than would have been the case if the top 10 foundations only spent, say, a third of that amount on staffing? That's the rationale of the staff-intensive model—that high overhead is justified because it enables foundations to leverage their money more effectively.

If that assumption is correct, than nobody should have a problem with these overhead costs, because it's ensuring that all the other money big foundations spend goes a lot further.

But is this assumption correct?

We've been arguing at IP, along with others, that it's not. That many big foundations have a grantmaking model that is both ineffective and costs too much.

What's weird is that it's hard to find a robust statement of the other side of this argument. Because foundations aren't really accountable to anyone, they never have to publicly defend their operating model.

That needs to change. If foundations want to spend a fortune on overhead, they should explain why that makes sense. Maybe their arguments will quiet the skeptics among us.

We'd love to publish a compelling defense in IP of the staff-intensive grantmaking model if anyone wants to write it up. Then we can have a debate that needs to be had.

David Callahan is founder and editor of Inside Philanthropy (davidc@insidephilanthropy.com)