Foundation Benchmarking Demystified

Foundation Benchmarking Demystified

Are you uncertain whether your foundation is benchmarking to its fullest advantage? Do you wonder if you should do more?

Benchmarking can be a simple, straightforward process. Your foundation can benefit from it with minimal time and effort, and on any budget.

Common types of benchmarking include:

Reasons to benchmark

Foundations choose to benchmark their practices for many reasons.

To comply with foundation law—Foundations often benchmark staff compensation, for example, which must legally be a reasonable amount based on rates paid to similar people doing similar work at similar organizations. Although legal requirements for other expenses are less clear, demonstrating that you considered comparables goes a long way toward protecting you and your foundation.

To benchmark salaries and benefits at her foundation, President Cathie Gura of The Children’s Guild Foundation in Buffalo, NY, uses Exponent Philanthropy’s survey report alongside a local survey report. She gives copies to each member of the foundation’s compensation committee.

Cedar Tree Foundation in Boston does a full review of all staff salaries every 3 years, according to Director of Administration and Finance Debra Moniz. The foundation relies on Exponent Philanthropy’s data and on the Council on Foundation’s compensation report, and compares results, looking at salaries overall and by asset size, region, and staff role.

To guide ethical decisions—One foundation’s trustees had very high compensation expectations, based on their prior experience serving on other boards. After reviewing relevant data, they realized their expectations were too high for the sector. Together, they decided to compensate trustees just a little above average for foundations in their asset range, but one-third of the original expectations.

To save money—Another individual called me and shared confidentially that he noticed his foundation was paying its accountants more than was typical for preparation of annual tax filings among foundations of its size. He shared the data with his accountants, who immediately reduced their rates for the foundation.

To inform board meetings—Benchmarking data can provide a very helpful reference point when preparing for meetings or making decisions. Debra Moniz includes peer benchmarks for investment returns in her annual report to the board. This helps the board reflect on its own investment policies and better understand the implications of its choices.

To get ideas for the future—More than just a curiosity, knowing how other foundations conduct their business, from number of board meetings to use of grantmaking software, can be very instructive.

Board Chair Kathy Pierce of the Drs. Martin & Dorothy Spatz Foundation in Sebastopol, CA, looks at a wide range of data to better understand how her foundation compares to others. She has learned about structures for compensating board members, for example, which led her foundation to successfully incent board member participation by creating an additional payment per meeting.

Kathy also uses our data on “Formal Written Policies in Use” to decide which policies her foundation should consider. Her foundation’s “slow but steady” approach is typical of the field; over time, we see many foundations adopt additional policies that work for them.

“I share grantmaking strategies from the Foundation Operations and Management Report with my board when we do our planning,” says Cathie Gura. “They see what others are doing, and it gives them ideas of what the options are. It also gives the directors a sense of confidence; we don’t have to go through our own process of ‘trial and error.’”

Where to start

Let’s dive into the benchmarking process. What can you benchmark? What should you benchmark? And how do you go about it?

  • Determine your goals. What are your goals for benchmarking? In what areas do you want to benchmark (e.g., staffing, strategies, policies), and to what end (e.g., legal compliance, ideas for the future)?
  • Review others’ practices. You can certainly compile a report yourself, but this method is time-intensive. For many benchmarking needs, our annual reports do the work for you. Other organizations also prepare helpful reports on specific topics, including regional associations, Center for Effective Philanthropy (grantee feedback and impact investing), Council on Foundations (staff compensation and investments), and Grantmakers for Effective Organizations (member and field practices).
  • Identify where you’re the same and different. Benchmarking shouldn’t result in every foundation doing the same thing. In some cases, such as staff compensation, it is wise to consider comparables and hew toward them. In other cases, such as whether your foundation gives locally or internationally, there is no right or wrong answer—but there is a right or wrong answer for your foundation. The important point is to act intentionally and know why your practices differ from the norm.
  • Implement approved recommendations. Depending on your foundation’s structure, you may be able to craft new policies or suggest changes for your foundation’s board to consider. Be sure to allow time in your schedule to manage any changes. Administrative work takes time and attention to detail, and major changes may need to be implemented slowly.
  • As appropriate, repeat at regular intervals. Benchmarking should make your work easier, not harder. Cedar Tree Foundation chose to benchmark staff salaries only every 3 years to allow for more time and thoughtfulness when the time comes—and the ability to focus on other tasks in the intervening years. Other benchmarking might be triggered by the release of annual survey reports, or by your foundation’s internal needs as questions arise. Yet other benchmarking may simply be done on an ad hoc basis (e.g., when you need to hire a consultant).

Revised & upsdated version of a blog post I originally wrote for Exponent Philanthropy while on staff. Reprinted with permission.