Staff seen as key driver of foundation costs

While grantmakers’ administrative expenses reflect factors such as foundation type and size, the existence and number of staff are key, a new report says.

Conducted by the Center on Nonprofits at the Urban Institute, the Foundation Center and GuideStar, the study looks at the nation’s 10,000 largest foundations, representing more than three-quarters of foundation giving and assets in 2001.

The vast majority of foundations studied, seven in 10, have no paid staff, and one in four report having no expenses at all that are related to mandated payouts.

Among foundations with paid staff, the median compensation for top executives exceeds $100,000 in 2003, and tops $500,000 for the largest independent foundations.

And for those with staff, the ratio of administrative expenses to charitable expenditures is higher, the report says, in part because more staff usually means more infrastructure.

That finding is true for corporate foundations, community foundations, and independent foundations, which represent nine in 10 grantmakers studied.

However, there appear to be economies of scale among foundations that give more, the study says, as these givers tend to see lower ratios of administrative expenses to charitable outlays.

But this ratio is influenced by other factors as well, particularly geographic reach and whether or not foundations engage in direct charitable activities.

Legal distinctions and foundation type, as well as differences in assets and mission, also have an impact, the study says.

In addition to the existence of staff, it says, international programming and program-related investments both tend to increase the expense ratio.

While most foundations do not pay their board members, independent foundations with staff and large grantmakers are more likely to compensate their governing boards.

Among the one in four foundations that do pay directors, the median compensation is about $8,000, the study says.

Another factor influencing expense-to-payout ratios is the state of the economy, the report says, because of its affects on foundations’ assets and giving levels.

That is particularly true for independent foundations because their mandated payout ratios are based on net assets, which tend to fluctuate with the stock market, and scaling back infrastructure during a downturn is a slow process, the study says.

For independent foundations, compensation is the largest expense category, the study says, while for corporate and community foundations, the largest category is “other,” which includes items such as evaluation and new technology.

Accurately assessing administrative expenses for corporate foundations is more difficult, the study says, because parent companies often absorb some of those costs.

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