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This brief presents key findings from the latest report on the Foundation Expenses and Compensation Project – the first large-scale, long-term, systematic study of independent, corporate, and community foundations' expenses and compensation patterns and the factors behind them. It documents how differences in type, size, and operating activities of foundations affect their finances and charitable administrative expenses. This brief highlights the key findings of the full report, What Drives Foundation Expenses and Compensation?: Results of a Three-Year Study.
This brief presents key findings from the latest
report of the Foundation Expenses and Compensation
Project—the first large-scale, long-term,
systematic study of independent, corporate,
and community foundations' expense and compensation
patterns and the factors behind them.
Documenting the varying characteristics of the
10,000 largest U.S. grantmaking foundations, the
study finds these differences—including foundation
type, size, and operating activities—essential
for understanding foundation finances. Not surprisingly,
hiring staff and taking on staff-intensive
activities raise charitable administrative expenditures
relative to charitable distributions, while
relying on unpaid board and family members and
engaging in less-staff-intensive activities lower
them. Most foundation operations, however, are
somewhere between these poles.
The study focuses on 2001, 2002, and 2003,
the latest years for which data were available when
the research was initiated. Despite the economic
downturn and the volatility of the stock market
during these years, the patterns of foundation
expenses and compensation are clear and consistent
over time. A longer time frame would have
been preferable, of course, but this three-year study
is the most robust analysis to date of nonprofit
finances, and it confirms and extends the findings
based on 2001 data, as reported in Foundation
Expenses and Compensation: How Operating
Characteristics Influence Spending (2006).
The study's goals are to inform public policy
debates and foundation practices by documenting
administrative expenses reported by foundations
for their grants and other charitable
activities, examining compensation levels of their
executive staff and board members, and assessing
the factors that drive both types of expenditures.
The focus is specifically on charitable administrative
expenses, those expenses that relate exclusively
to programs and count as qualifying distributions
toward the 5 percent payout requirement for private
foundations. Expenditures for investment-related
activities are not part of this study, except
insofar as compensation levels of individual staff
and trustees are based on total compensation, and
are not broken down by functions.
For years, discussions of appropriate levels
of foundation expenses and compensation have
been hampered by insufficient empirical data.
This study is large and rigorous enough to answer
basic questions about existing practices. The hope
is that this report will inform government oversight,
sector self-regulation, and individual foundation
administration. In particular, foundation
managers and board members can use the data to
compare their expense levels over several years
with those of similar foundations.
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