Explaining overhead costs might ultimately be futile, academic Ayelet Gneezy warns charities

Gneezy, a US-based professor of behavioural sciences, suggests charities should instead ask major donors to cover staff salaries and fundraising costs, thereby offering the public an 'overhead-free donation opportunity'

Ayelet Gneezy
Ayelet Gneezy

Attempts by charities to explain their overhead costs might be an uphill battle that could ultimately prove futile, according to Ayelet Gneezy, a US professor of behavioural sciences.

Gneezy, who is associate professor of behavioural sciences and marketing at the Rady School of Management at the University of California, San Diego, yesterday presented her study, Avoiding Overhead Aversion in Charity, at the Science of Response conference organised by the consultancy Instinctiv in London.

The study says that efforts to explain overheads could "entail a prolonged uphill battle that may ultimately prove futile".

It says: "Instead, to increase current charitable giving, we propose an approach that simultaneously addresses individuals’ concerns and increases overall giving."

Gneezy said yesterday that rather than trying to address prospective donors’ concerns about overheads – such as staff salaries and fundraising costs – charities should get major donors to cover these expenses, thereby offering the general public an "overhead-free donation opportunity".

This would mean that charities could focus their efforts on convincing a handful of big donors that their money was best spent on overheads, rather than trying to change the perceptions of the general public, she said.

Gneezy said that the research – produced in collaboration with the academics Uri Gneezy and Elizabeth A Keenan and published in the journal Science – showed that donations fell when overhead costs increased, but only when donors paid for the costs themselves.

This was demonstrated by a laboratory experiment on 449 undergraduates from a university in California; this found that participants were 24 per cent less likely to choose to donate to charity where 50 per cent of the donation would be spent on costs than to a charity where there were no overheads.

But when participants were informed that the overhead costs had been covered by someone else, they were equally willing to donate to the charity with 50 per cent overhead costs as to the charity with no overheads.

The hypothesis that donors do not mind overhead costs as long as they do not have to pay them themselves was then tested in a field experiment with 40,000 potential donors.

It found that informing people that overheads were covered by a donation from an individual increased the response rate from 3 per cent to 9 per cent, and increased the total donations by 188 per cent.

Gneezy said that charities could bypass the public’s reluctance to donate because of overhead-related concerns by following the example of a US non-profit that had split into two separate organisations – charity: water, which accepts donations that go entirely to programme expenses, and The Well, which fundraises for charity: water and has its costs paid for by larger, wealthy donors.

But she said it was not clear whether this approach would be better than charities not mentioning overheads at all. This was likely to depend on donors’ views on overheads as well as the value they put on transparency in organisations, she said.

Gneezy said she was not suggesting that charities end their efforts to explain the importance of overheads and how money was spent to improve the effectiveness of charities, but that an approach that simultaneously addressed individuals’ concerns and increased overall giving could bear more fruit.

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