We Need to Have a Better Conversation about Overhead

For the last several years, the nonprofit sector has been having a very serious conversation about ‘overhead’. It’s a conversation that stems from a very real problem: many donors believe that nonprofit organizations should spend at least 77% of their budgets directly on the services they provide. That might not sound like a big deal, but nonprofits – like other organizations – also need to spend money on staff salaries, office supplies, fundraising and marketing efforts, and so on. And while there’s no agreement over what nonprofit organizations should be spending on overhead, there’s broad agreement that ‘as little as possible, even if it hurts the organization’ isn’t the right answer.

The problem is simple: the spending patterns that donors want to see (very little overhead) and the spending patterns that help organizations solve social problems (more than very little overhead) don’t match. And the very serious conversation is important.

But there are deep problems with the conversation we’ve been having. One of the big problems came to my attention in this recent post from Amy Eisenstein; it’s a post about the Wounded Warrior Project scandal.

For those of you who aren’t in the loop, Wounded Warrior Project is an organization that serves veterans wounded in the military actions that followed September 11, 2001. It’s an organization that does very well financially, receiving more than $300 million in donations in 2014. Earlier in 2016, CBS News reported that the Project was spending lavishly on conferences and events. Serious questions arose about whether the organization was wasting donor money, and in March the Project fired its CEO and COO while claiming that the core problem was that the organization ‘grew to fast.’

And normally, that would be it. Wounded Warrior Project would have to work on rebuilding trust with its constituents and the rest of us would move on.

Eisenstein, however, uses this as an opportunity to participate in the very serious conversation about overhead. In her post, Steve Nardizzi – the now-former CEO of Wounded Warrior Project – is an example of a great leader, “a real inspiration to fundraisers everywhere” who shows “provided unprecedented leadership and growth to Wounded Warriors.”

“Somewhere along the way,” she writes, “he crossed a line.”

Yes. The Wounded Warrior Project scandal isn’t about well-qualified and effective staff being paid well.1But, seriously, let’s have some humility when it comes to executive pay. Nardizzi had an annual base salary of $375,000. Many people in the nonprofit sector would defend that kind of salary because someone in a similar position in the for-profit sector would make that amount or more. That’s all well and good, but we also need to ask whether anyone needs to be making that kind of salary. It isn’t about fixing broken chairs. It isn’t about replacing outdated computers. It’s about lavish parties, first class accommodations, and suing smaller organizations. It’s about failing to deliver on the promises that the Project made to donors… and to wounded veterans.

In other words, it’s not about overhead. It’s about waste.

And a big problem with our very serious conversation about overhead is that we’re too fuzzy on that difference.

Here’s the thing. I don’t think it’s that difficult to convince supporters about the value of overhead. People understand that we need to spend money on salaries and buildings and office supplies and on community building. All we have to do is connect that spending to our missions.

People will understand… if we can show them how our spending improves their impact.

That’s going to take some work. The first step is to admit that there’s a difference between overhead and waste.

Overhead helps us work, grow, and improve lives. Salaries for staff who attain greater outcomes are overhead. Software that helps us understand out clients better is overhead. Communication vehicles that help us build communities and create change are overhead. And I believe that people will understand that.

Waste doesn’t help us work, grow, and improve lives. Custom made maracas with the logo for every staff member is waste. Entering a meeting by rappelling down the side of a building is waste. Annual conferences as five-star resorts are waste. Shiny new toys that don’t advance the mission are waste. People understand that.

In order to have a better conversation about overhead – in order to have one that really is very serious – we need to take a serious look at our spending and think about what is overhead and what is waste. It’ll be different for every part of the sector, but only once we’ve done this can we start really thinking about what an appropriate amount is and how to educate our donors about it.

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