St. Jude Pays a Lot to Raise Money—Drawing Critics but Also Funds

St. Jude Children’s Research Hospital is a fundraising powerhouse, but some observers question what it does with contributions.

In November, Forbes magazine ranked St. Jude as one of 20 big charities that is “least efficient financially,” partly because of its high fundraising costs: 21 percent of the money raised by St. Jude is eaten up by salaries and other fundraising expenses, more than double the 10-percent average among the 200 largest charities in the nation.

Indeed, St. Jude has a huge development staff. More than 1,000 people work for its fundraising arm in Memphis or in one of its 33 offices around the country.

The hospital’s chief fundraiser, David McKee, who’s worked at St. Jude for 35 years, earned $551,395 in salary and benefits in the fiscal year ending on June 30, 2010, according to the most recent Form 990 informational tax return filed by the hospital’s fundraising arm. His boss, Richard C. Shadyac Jr., a former board member who took over the top fundraising position that same year, earned $490,000.

Big compensation packages are not unusual among hospital fundraisers.

Memorial Sloan-Kettering Cancer Center, another highly respected cancer-treatment facility, pays its two top fundraisers a lot more than St. Jude does, but it raises less money. In 2010, Sloan-Kettering raised $244.6-million, compared with St. Jude’s $659.4-million. Yet Anne M. McSweeney, Sloan-Kettering’s top-paid fundraiser, earned $1.4-million that year, more than double what St. Jude paid Mr. McKee. Her colleague Richard K. Naum, vice president for development, made $844,100.

‘Unrealistic View’

Evaluating whether any charity spends too much on salaries or other fundraising expenses is tough. Many charity advocates say that donors, the press, and others take an unrealistic view of what it takes to raise money and run a nonprofit.

“People immediately start heating up the tar and feathers anytime they hear about a high salary—anything over $100,000—in a charity,” says Robert Egger, the founder of a Washington charity who has spoken against excessive pay in the nonprofit world. One reason: Most Americans don’t make that much, Mr. Egger says.

Comparing charities to one another is also a challenge.

Even as Forbes lumped St. Jude with other big charities like Disabled American Veterans, Girl Scouts of the USA, and the Museum of Modern Art in its group of least efficient organizations, the magazine advises readers against comparing efficiency ratios for different types of charities.

“There’s no valid way,” it says, “to size up a hospital versus a foreign disaster-relief outfit versus a museum.”

That’s one reason why the Forbes rating of St. Jude is “irresponsible,” says Mr. Shadyac.

Organizations that received top rankings from the magazine, he notes, include several charities that get most of their contributions in the form of medicine or other donated goods, which leads to lower overhead costs. And, he says, St. Jude has higher fundraising costs than other hospitals for another good reason: It relies on experimental treatments and charity care that are often not reimbursed by insurance companies, a larger source of funds at other medical centers.

“The problem with rating agencies is they try to apply one formula to very diversified fundraising models,” Mr. Shadyac says.

Lack of Standards

Scholars like Bill Levis at the National Center for Charitable Statistics agree. Mr. Levis argues that it’s misleading to compare organizations based on how much of a donation ends up in a charity’s coffers after it has deducted fundraising expenses. That’s because fundraising expenses vary so widely according to the type of appeals a charity uses and how long it’s been seeking donations.

What’s more, Mr. Levis, who created an annual study of fundraising costs at thousands of charities, says many organizations underreport their fundraising expenses because they are afraid of getting low marks from watchdog groups and the press.

William McGinly, president of the Association for Healthcare Philanthropy, a professional group for fundraisers working in nearly 5,000 hospitals, says that big hospitals like St. Jude may say they spend less than they do because no ironclad standards exist on reporting fundraising costs.

To help its members get a better handle on how much it really costs to raise a dollar, the association in 2005 created a “benchmarking group” for hospitals and medical centers that agree to follow standard methods of reporting salaries and other fundraising costs. Among the 120 hospitals that participate in the benchmarking group—St. Jude is not one of them—the costs of raising money range from 28 percent to 30 percent.

That makes St. Jude’s 21-percent fundraising costs lower than many and well below the 35-percent maximum fundraising expenses allowed by the BBB Wise Giving Alliance. The alliance, a watchdog agency, rates charities on whether they meet several standards including what they spend to bring in donations.

“In the general public, there’s a misperception that nonprofits should spend next to nothing on fundraising and administration,” says Bennett Weiner, the watchdog’s chief operating officer. “That is unfortunate.”