It’s a common sentiment, a cliché almost: “Charities bother me, when I find out that the people behind the charities are making millions of dollars . . . It’s scary.” So stated Joe Rogan in a podcast conversation with Barstool Sports president Dave Portnoy.
Needless to say, it would be unseemly and unjust for someone to profit merely from the appearance of doing good for others. Rogan's sentiment is to some extent unsurprising and appropriate: charities exist to do good, and the money given to them should go to those in need. Only what is absolutely necessary to run the operational side should go to that. Rogan goes on to lament that “there’s just too much overhead.” “Some of them are pretty good,” Rogan notes, “but some of them are shockingly bad, like 10%” going to the missional work of the charity.
Rogan and Portnoy then go on to examine a few charities and their overhead percentages, holding the American Red Cross as the epitome of what a charity ought to be, with $0.90 of every dollar funding missional work and only $0.10 to their overhead costs.
There is no shortage of scammers and bad actors in our world, and the charitable sector is no exception. Rogan is right to be wary of such malefactors. And yet, his analysis misses the mark in dramatic fashion. It's an all-too-common and misguided critique of the nonprofit sector—and it's one that harms charities and hamstrings the effectiveness of philanthropists.
Rogan is worried that (a) someone might make millions working at a charity and (b) that charities spend “too much” on overhead. Let's look at exactly how the Red Cross performs in both of these areas. First, salary. In 2020, the highest-paid employee, the chief operating officer, pulled in a cool $752,608. The top 15 employees at the Red Cross all pulled over $300,000. These may not be the highest-paid employees in America, but that's certainly well above average. Are these permissible wages? (And isn't there something ironic in two multi-millionaire entertainers criticizing those doing work in service of others for making too much money? Why wouldn't we want to compensate highly talented people devoting their lives to missional work?)
What about overhead? In 2020, the America Red Cross saw over $3 billion in revenue, and just shy of $1 billion ($962 million) of that was in grants and contributions. If $0.10 of every dollar was spent on fundraising, that's a whopping $96 million dollars. The 10% ratio may impress Rogan and Portnoy, but the total actual spend is much larger than the entire budget of most nonprofits in America. Surely these successful businessmen can imagine that the cost to raise a dollar might inevitably be higher for smaller organizations. (And this of course raises the question as to whether Rogan and Portnoy see the value in smaller organizations or only believe in the consolidation of resources to manage economies of scale in fundraising and overhead.)
The cost to raise a dollar might seem like a fair, universal metric, but it's really comparing apples to oranges. These attempts to judge every organization equally fail marvelously.
One reason we can't judge all organizations equally is that they haven't all been around for as long. The American Red Cross was born in 1881. What does this mean for an organization? It means that it has nearly universal name recognition. It means that it has a good reputation. It means that it has had time to grow and scale its processes to a level at which it can reduce its overhead costs due to economies of scale and efficiency.
Younger organizations do not have these luxuries, because they're not yet established enough. Even if they are out of the start-up phase, few organizations—if any—enjoy the name recognition and prominence of the Red Cross. They may be in growth mode or they may have a smaller audience—whatever the case, we can't discount the virtues and values of organizations that fail to live up to the standards (on paper) of the Red Cross.
So where does this leave us? First, don't reduce well-paid employees or investments in overhead to being "scammers." Sure, there are grifters in the charitable sector, but they might be harder to spot than that.
Why? Because “overhead” costs are important. Investments in staff and other internal needs may not be "directly to the beneficiary," but when they are made well, they are investments—ultimately—in growing the mission and serving more people. Rogan and Portnoy say that they like giving money "directly to the people in need." That idea sounds nice, but it overlooks the value of institutions and the longevity and perspective (among much else) that institutions can provide in solving problems or serving those in need.
Relatedly, you want those institutions to execute their mission well and spend donor dollars well. To that end, we should want this very important work to be done by top-notch people. Turnover is an enduring problem in the nonprofit world, as well as attracting top talent. Part of the reason for this is a pressure to keep salaries low due to pressure from donors to keep “overhead” low.
This impulse may make sense at first blush, but when you look more closely, you see that this impulse results in less effective charitable work. The end result is not grifters, but it also isn't the most well-executed mission.
If they are truly invested in an organization's mission—whatever the mission is—donors should be excited to give their money not only to overhead but specifically to fundraising costs. Why? Because more fundraising equals more revenue which equals more mission! The Red Cross didn’t get to the point of raising one billion dollars by skimping on their investment in fundraising or cutting back on overhead. They made the necessary investments to grow and build an organization that now serves people across the globe and is one of the most widely respected nonprofits in the world.
Rogan and Portnoy, by all accounts, are very generous. It’s not hard to find stories of Rogan sending his personal doctors to treat friends during the COVID-19 pandemic or Barstool Sports engaging in charitable activities. They both intuit a fundamental reality of American civil society: that charity is important, and it is good for the giver.
Where Rogan and Portnoy misstep, however, is failing to understand how charities operate and the need to invest in the unsexy costs of “overhead” in order to have a greater impact. For some reason, they seem to think that money will fall like manna from Heaven into the open and efficient palms of underpaid nonprofit executives—and that those who are well compensated for working hard to raise money are untrustworthy.
They are not alone in this thinking, but we need to disabuse Americans of the delusion. Nonprofits should have justly compensated employees who make wise decisions about how to invest resources to enable growth and increase the impact of their mission.