This story appears in the August issue of Utah Business. Subscribe.
Imagine two organizations operating on the same street. Both do frontline community work to provide basic needs and are dealing with fairly tight budgets. Both have leaky roofs.
One has 15 percent of its budget going to overhead, a figure that Jill Bennett, CEO of the Utah Nonprofits Association, says gets treated as the “gold standard” by boards and donors — a goal increasingly portrayed as a myth by nonprofit administrators. The other has 20 percent overhead costs.
“There are some givers who would say, ‘I’m going for the 15, it’s clearly a better organization, they’re probably doing things right,’” Bennett says. “The one with the lower overhead keeps patching it and patching it and patching it. … I don’t know about you, but I’d rather work for the organization that doesn’t have a leaky roof, and I think that should inform funders, as well.”
A balancing act
With lingering problems from inflation and the pandemic, employee retention remains a problem across various markets and sectors. Nonprofit employees have been particularly hard hit because grantmakers and donors often expect them to maintain lower budgets. For experts who work in the sector, the balance comes in making sure donors are well aware of the reality facing non-governmental organizations (NGOs).
Meanwhile, in recent years, high-profile NGOs have made headlines for wasteful spending on things like private jets and luxurious parties. This has led to a core tension for nonprofit management: Public perception demands transparency around spending, but the pressure to keep costs low also undercuts their ability to attract strong workers. Nonprofit administrators have been pushing back on the broad categorization of all NGOs under the same banner, arguing that there’s no way to enforce a norm around how much overhead is too much.
Bennett considers this issue particularly important in Utah because there are many NGOs at the local level. She points to a study that found 6.7 percent of Utah’s workforce is in the nonprofit sector.
“It’s a huge amount of employment, and yet we’re held to different standards,” she says. “Nonprofits focus on better futures for everyone. We care for unsheltered people and their pets. We care about clean air and water for our children and their families.”
The importance of frontline workers
Kathleen Bodenlos, CEO of the Discovery Gateway Children’s Museum in Salt Lake City, says the pressure to keep costs low can create complex staffing choices at the front lines.
“It does require a balance between our efforts to fundraise and then keep our costs down,” she continues. “Talent in a museum is typically the highest of line items; it’s where we spend most of our money. What we’ve tried to do is create a culture that people want to work in. … Retention is always a hard thing, too, because employees can always find a higher-paying job. If they find one, they tend to move on.”
Bodenlos points out that the department store Target pays a bit better than Discovery Gateway can pay its floor operations team, so the museum can have trouble retaining staff. But those staff members are crucial — they clean and protect the art and build complex exhibits, among other things.
“They make the museum, they build the exhibits, they greet the visitors. They do everything for us, and without a really strong talent force, we wouldn’t be where we are,” Bodenlos says.
Why debunking nonprofit overhead myths is crucial
In its 2023 Nonprofit Workforce Survey, the National Council of Nonprofits found that more than 74 percent of nonprofits reported vacancies. “We’re seeing people leave the sector,” Bennett says. “Inflation hit nonprofits particularly hard. We are so thin on our margins that, if we have a choice, we try to put our money into programming. That means there are fewer dollars for people who work there.”
Meanwhile, donor fatigue can crop up for NGOs because of the public perception that they should keep administrative costs at nearly zero. Saru Ramanan, director of communications at the Utah Nonprofits Association, argues that a bit of scrutiny on an organization’s budget can be good for transparency but that there is a double standard around that being applied only in a nonprofit setting.
“It’s a trade-off for tax exemption, this high level of transparency and very high level of accountability,” Ramanan says. “It’s a long-standing historical perception that is borne out of volunteer work: You ask for nothing in return. [There is a] connotation around doing things out of the goodness of your own heart, and here we have this growing professional sector that is getting more professionalized over the years. It’s not just activists, it’s not just volunteers, … but I don’t think the public perception has kept up with that professionalization of the sector.”
Bennett, meanwhile, points out that not all overhead is the same. She says some might use their budget to implement a data analysis that interprets the impact of their programs and allows them to better serve their clients.
“Historically, I think organizations have been held to a standard by charity watchdog groups in terms of every dollar given, what’s the allocation to overhead, and what’s the administrative cost and the programs,” Ramanan says. “Invariably, you see the compensation issue. If you can’t attract and retain talent, people are going to leave.”
Compensation gets a lot of attention and is tied to the scale of the NGO, Ramanan says, but there are incentives that can make staying easier for workers who are invested in the job, like flexibility regarding hours and remote work, support for career training and more. She also says many scandalous cases make the news when public perception sees them as wasting donor money, but points out that many NGOs she knows would be reluctant to cut frontline staff and are more likely to take the hit in the office.
Bodenlos says the role of a museum is different from the delivery of basic services, which allows it more revenue options. For example, the nature of hosting in-person exhibits opens it up to for-profit support.
“In our particular case, most of our funders are corporate sponsors,” Bodenlos says. She says this flexibility allows them to focus on funding staff through ticket sales, summer camps, art camps and their toy store. “Basically everything that is earned revenue is how we support our employees,” she continues.
A call for change
In June, Ramanan and Bennett traveled to Washington, D.C., to advocate for several regulations that would give nonprofits more flexibility.
“The call to action is to ask the funding community to support general operating support and allocate more grant dollars toward those administrative functions,” Ramanan says. “With project funding, you can often only guarantee a full-time role for one to three years. How do you build sustainability if you’re so dependent on program funding that every few years, you have to change your entire program? It’s really a call for greater sustainability by supporting sound investment.”