Impact of Record-High US Giving on Charity Executive Compensation

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 27. July 2016 09:51

 

The Indiana University Lilly Family School of Philanthropy’s recent report Giving USA 2016 found that American individuals, estates, foundations and corporations gave an estimated $373.25 billion to charities in 2015, reaching a record level for the second year in a row.  Total giving grew 4.1% in current dollars (4.0% when adjusted for inflation) in 2015 over 2014.  With size of revenues as a major influence on executive compensation levels, some might think that those who lead the charities may be in for increases.

Some Necessary Details

A more nuanced look at the annual giving report includes the following:

Almost $265 billion of all dollars given comes from living individuals – that is, 71% of the total; the increase from 2014 is 3.8%.

  • $58.5 billion, from foundations, about 6.5% higher than in 2014.
  • $32 billion from charitable bequests, an increase of 2.1% over 2014.
  • $18.5 billion from corporations, about 2.1% over 2014.

Average increases in giving are misleading – different types of charities received different amounts of donations.

  • Religious organizations received the most – 32% of the total giving -- and over $119 billion, but less than a 2% increase from 2015
  • Education -- $57 billion, up 9% from 2014
  • Human Services -- $45 billion, up 4.2%
  • Foundations -- $42 billion, almost a 4% drop from 2014
  • Health -- $30 billion, up 1.3%
  • Public-Society Benefit -- $27 billion, up 6%
  • Art/Culture/Humanities -- $17 billion, up 7%
  • International Affairs -- $16 billion, up 17.5%
  • Environment/Animals -- $11 billion, up 6.2%

In addition, $6.6 billion went to individuals, mostly in-kind donations of medicine from the patient assistance programs of pharmaceutical foundations.

Impact of Increased Giving on Compensation

While the overall totals for giving look robust, again, a more detailed analysis shows the variety within the charitable sector.  The increase in giving is certainly not evenly distributed among sources.  For example, while many may think that most nonprofits are supported by foundation grants and corporate gifts, most charitable dollars given come from individuals – 71% of the total, in fact.  Human services organizations, the ones that first come to mind when most people think of as “charities,” received $45 billion in 2015, or only about 12% of the total given.

The second issue to note is that different types of charities receive widely varying amounts of support from giving. For many, gifts and donations are not the major source of revenues, as they receive payment for services (for example, individual patient and Medicare payments to nonprofit hospitals, college tuition to private universities, and parent payments for nonprofit child care).  And often social and health services paid for with public dollars are provided through contracts with nonprofits (such as foster care, mental health counseling, and services for the disabled).  Most of their revenue is from government contracts, not donations.   

Conclusion

So, as usual, generalizations do not work well in the charitable sector.  It cannot be assumed that if US giving increases, then all charities will experience growth in revenues – there are wide variations among types.  As noted above, the amounts given to different types of charities are very different.  Then, the fact that the proportion of the total revenues that charitable giving represents is very different for different types of operations.  When tasked with determining appropriate compensation for charity executives, averages just do not work.  Data from similar organizations (same type of service, comparable revenue or asset size, relevant geographic location) is definitely required.  Compensation must be reasonable, not only to meet the IRS requirements to also to make donors comfortable with donations that they may make to the organization.  Finding that comparable data and determining what nonprofit executives in similar organizations are being paid are the functions of ERI’s Nonprofit Comparables Assessor.