THE BLOG
12/01/2014 10:41 pm ET Updated Jan 31, 2015

This Giving Tuesday: Five Reasons to Stop Obsessing About Overhead at Non-Profits

As part of the run up to the giving season, my local public radio station recently asked listeners to share what they cared most about when they gave philanthropically. The first listener's comments stood out to me: "When I give, what I care about is that my money goes directly to the people who need it, and not to salaries or administration or any of that stuff."

As someone who works in the citizen sector, I am all too familiar with such sentiments. Salaries and administrative costs are often referred to as 'overhead' expenses and long considered a mark of organizational inefficiency and waste. Sadly it's a perspective that still dominates among donors and philanthropists, and it's one that is both mistaken and counterproductive. So for this Giving Tuesday I want to share five reasons why.

1. What you call overhead, I call talent.

Business understands the importance of investing in talent. Top businesses in particular - like the Googles of the world - spend considerable resources to find and keep quality people. And they think of their people not as a necessary cost that should be minimized (read: 'overhead'), but rather an organization's top asset that should be nourished and given room to innovate and thrive. After all, this is where new ideas, new products, and entirely new fields originate. Why should we think differently when it comes to the social sector?

Citizen sector organizations aren't big warehouses filled with bureaucratic paper-pushers skimming ever-greater chunks off of your donated dollar. My colleagues and peers are bright, creative, and entrepreneurial. They have PhDs and MBAs, they've worked in this field all over the world, and many have started their own organizations at some point in their lives. They're also deeply passionate about and committed to what they do. More than a job, their work is an extension of who they are and what they care about.

We're facing a lot of big, complicated problems - from climate change to rising inequality - and we're going to need talented people working on them if we hope to get to a better place.

2. We need to make it easier for people to choose careers working on public problems.

There will always be a salary gap between the private and non-profit sectors, but our obsession with overhead only makes things worse. If we want to attract top talent into our work, then we need to be more competitive on salaries and benefits. Passion for one's work goes a long way, but passion alone can't offset the realities of rent, of big education loans, and of raising families.

Many of my peers have taken private sector jobs because the financial sacrifice of not doing so is too steep. We all lose out as a result: Instead of developing state-of-the-art water management systems in the parched West, they're consulting for Fortune 500 companies. It's not really what they want, and it's not really what we need.

Rather than bemoaning that some portion of our donated dollars might be going to someone's salary, shouldn't it make us feel good that we're making it possible for another talented person to work for the common good?

3. The 'overhead ratio' is an outdated way to measure an organization's quality.

Worrying about overhead made more sense when the social sector was dominated by charities that collect dollars and redistribute them to the poor. But just as the private sector has evolved from manufacturing to the 'knowledge economy,' our sector has also evolved. We're working on financing models for clean energy, rural healthcare delivery via videoconference, or how to be a more welcoming country for immigrants. We're developing whole new types of law that support a more equitable economy.

The people behind these ideas are far from clerical middlemen - they are societal change agents. Entrepreneurs, engineers, writers and artists, community organizers. They will be behind the next big idea like microfinance.

If we accept the fact that we need transformative solutions that address the causes of poverty rather than simply alleviate its symptoms, then we need to think of ourselves as investors - in people, ideas, systems - rather than just penny-wise donors.

4. Those who disparage 'overhead' spending often criticize the social sector for its operations and management.

When people refer to overhead they often mean administrative costs - fundraising, IT, human resources, marketing, etc. In other words, boring non-programmatic stuff. NGOs know this, so they squeeze those costs down as much as possible, hiring consultants, finding volunteer web programmers, or distributing tasks like fundraising and hiring across program staff. This often leads to what the Stanford Social Innovation Review dubbed the 'Nonprofit Starvation Cycle', where infrastructure spending and important tasks like strategic planning, staff training, and measuring effectiveness are put on the perpetual back burner. Or it leads to burnout when too few staff are managing too much.

And then comes the Catch-22: NGOs are routinely lambasted for outdated data management systems and IT infrastructure, or insufficient evidence-based impact. So we're criticized both for our outdated websites, and then for hiring a top-quality Chief Information Officer to make things better.

I still meet executive directors who book their own travel and line edit their web content. They know this isn't the most strategic use of their time, but they also know a new hire adds to the overhead column, so they're reluctant to do so - and they'd have trouble raising money for it anyway. Thankfully the more enlightened philanthropists understand the value of providing unrestricted funding for organizations to use in the most strategic way possible. If that means hiring an administrative assistant or a web editor, so be it. The point is that these kinds of contributions can enable an organization to take big steps forward. When we obsess about overhead, we're pulling back on the reins instead.

5. There's an implicit accusation in such sentiments that non-profits are full of waste and luxury.

Nothing could be further from the truth. Sure, there have been some high-profile scandals of misused funding, and there are some valid criticisms of the bloated salaries of foundation executives in particular. But deeply engrained within most civil society organizations is a frugality that comes with having to regularly ask others for money. We're not all sitting on Gates or Ford Foundation-sized endowments. And when you know how hard it is to ask someone for $100 - let alone $100,000 - then you become ultra conscious about how you spend it. Thrift becomes part of your organizational DNA.

So this Giving Tuesday, let's think twice about our overhead obsession and what it might mean for the very same organizations we're rooting for. And let's give thanks to those who have chosen careers dedicated to solving big problems that affect us all.

Michael Zakaras is a writer and strategist who specializes in social entrepreneurship and public policy. He is the U.S. Venture Director for Ashoka, helping them to identify and support social innovators who bring creative solutions to entrenched problems here in the United States. You can learn more at usa.ashoka.org