Who cares about charities’ overhead ratios?

By Felix Salmon
December 2, 2009
blogging and tweeting and putting out press releases all trying to "kill the myth of overhead ratios":


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Tim Ogden is on the warparth, blogging and tweeting and putting out press releases all trying to “kill the myth of overhead ratios”:

The month between Thanksgiving and Christmas is often known as giving season, not just for Christmas and Hannukah gifts but because many people make major donations to charity this time of year.

Given the global recession, it’s more important than ever to make those charitable dollars go further by putting them in the hands of charities that do the most good. For years, donors have been relying on one measure to evaluate charities—the overhead ratio.

I’m with Tim on the importance of looking at outputs rather than inputs — although of course that’s harder than just looking at a single unreliable metric.

But is it really true that donors in general have been relying to a great degree on overhead ratios? Allison Fine seems to think so. If it’s really the case that large number of philanthropists have been using overhead rates as a proxy for effectiveness, the world of corporate philanthropy clearly needs much more shaking up than I’d thought.

On an individual level, I think that people generally give to causes they believe in, or because of some personal connection to the non-profit in question: I can’t believe that overhead ratios play a huge role in the decision-making process, although once you’ve started supporting a certain charity, looking at a low overhead ratio can help you feel that much better about your decision.

But if you are one of the people for whom overhead ratios are very important, then go read Tim’s post. You’re part of the problem, providing incentives for charities to spend extra effort fudging their numbers, as opposed to actually doing good in the world. And you’re also contributing to the slightly poisonous idea that there’s something morally dubious about non-profit workers being paid for what they do. This Christmas, I’m even thinking of giving money straight to non-profit employees, rather than to the charity itself, as a way of saying thank-you for all the amazing (and extremely underpaid) work that they do.

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