By Heidi Genrich
My entire holiday season was made on December 1st, 2009 when Charity Navigator, GiveWell, Great Nonprofits, Guidestar and Philanthropedia issued a joint press release condemning the use of overhead ratios and executive salaries to evaluate nonprofits.
Judging a nonprofit’s quality by how much they spend on laser printers vs. African wells, arbitrarily creating universal budget guidelines for all types of organizations, always seemed a little silly. Even if the overhead-ratio-executive-salary method of comparing nonprofits worked in specific circumstances, it made no attempt to measure the actual impact of their programs.
In short, picking a charity based on the lowest overhead ratio is like buying the cheapest car that money can buy. You might spend less in the short run but it’s inevitably going to let you down.
Ken Berger, the CEO and President of Charity Navigator, may have sent the biggest waves through the nonprofit community with his statement that “too many donors are paying too much attention to measures like overhead.” Charity Navigator became the web’s nonprofit gold standard precisely because it encouraged donors to judge and compare nonprofits based on their overhead ratios. This is a turning point that is long overdue.
As a longtime critic of overhead ratio evaluations, Dan Pallota’s post on the press release may be the most interesting. The next step is to figure out an accessible standard by which the average donor can evaluate the >1 million nonprofit organizations in the US.