Another Red Cross myth

A widely circulated email claims the American Red Cross charges the people it helps.
Caroline Punches of the Northern Nevada chapter of the American Red Cross said, “We do not charge people for assistance.
“We consider what we do for people who have been impacted by disaster to be gifts from the American people. We are basically sharing the resources that have been given to us to provide that support.”
She added that the Red Cross has been providing help in Northern Nevada since 1898.

The claim

The American Red Cross is not a good group to donate to because the CEO gets an exorbitant salary.

The background

When disasters strike — and Northern Nevada seems to have had more than its share lately — the Reno Gazette-Journal gets contacted from people with doubts about the American Red Cross.

An example comes from Kathi Church of Reno, who called Fact Checker and said:

“I’m very hesitant to donate to the Red Cross. … In the wake of the fires, how do you know that the money you’re sending is going to go to the people who need it and not to a mansion in Hawaii?”

Such comments are often inspired by a widely circulated but inaccurate and outdated email about charity CEO pay.

Caroline Punches, executive director of the Northern Nevada chapter, said, “The American Red Cross is totally transparent, and our 990 (IRS) forms are on our website so people can go on there and see what every person at those higher levels is paid.

“Gail McGovern is our Red Cross president and CEO and is paid $500,000 a year — this is considered to be in the mid-range for a large nonprofit in the range of $3.4 billion a year.

“She started with the Red Cross three years ago, and she has not taken any pay increases in those three years. And she has personally given $185,000 to the American Red Cross in charitable donations since becoming the CEO in 2008.

“None of her salary comes from our disaster fundraising. So when people are giving to our disaster relief programs, only nine percent is administrative overhead — 91 percent goes to support the disaster relief efforts.”

Charity Navigator, an independent online site that rates charities to help people make informed donations, says McGovern gets compensation of just under $1 million a year.

Guidestar, which also tracks nonprofit organizations, contains numerous negative reader comments for the American Red Cross and most mention the $1 million salary. A typical comment:

“The CEO of a charity organization should NOT be earning close to a million dollars a year, no matter how big the charity. If you want to get rich, go work for a corporation.”

McGovern’s salary is actually half that. For fiscal year 2010, the one-time cost of her relocation from Boston to Washington, D.C. — about $475,000 — was included with her regular pay in the latest Charity Navigator posting, Punches said.

The Red Cross has a “compensation and management development committee” that is independent of management and that engages an outside consulting firm to make sure all compensation is typical yet competitive for the size and location of the organization. All compensation for senior national executives is reviewed and approved by this committee, Punches said.

For comparison’s sake, Charity Navigator lists CEO pay as a percentage of each group’s overall budget. Even at $1 million, McGovern’s pay is 0.02 percent of the organization’s expenses. If calculated using her normal annual salary, it would be 0.01 percent of its expenses.

Compared to other organizations, this seems low. For example, the compensation of United Way’s chief Brian Gallagher is 0.61 percent of the group’s total expenses, or 61 times more. (He earns $560,000 a year in annual compensation, more than McGovern, despite the fact the national United Way organization has annual revenues of about $90 million, or about 38 times less than the Red Cross.)

The CEO of the American Cancer Society, which is about one-third the size of the Red Cross, earns $914,000 a year, with other salaries in the organization around $1.5 million. And the CEO of Food for the Poor, also about one-third as big as the Red Cross, earns almost $400,000.

In that widely forwarded email about charity CEO pay, the writer champions various military groups as examples of thriftiness. For instance, the National Vietnam Veterans Foundation is mentioned as having a CEO who gets no compensation. (Actually, the email mentions the Vietnam Veterans Association, which doesn’t exist.)

It’s true that the National Vietnam Veterans Foundation reports its CEO gets zero compensation, according to Charity Navigator, but it also spends almost 90 percent of donations on fundraising and less than 10 percent helping veterans.

By contrast, Charity Navigator reports the American Red Cross spends 92 percent of donations on program expenses with only 4 percent on fundraising and 4 percent on administration. (Charity Navigator also gives the American Red Cross its highest rating for donation-worthiness: four out of four stars.)

But let’s try another angle. The Red Cross’ McGovern runs a multibillion-dollar organization. This requires special skills, so what would similar CEOs in the private sphere earn, keeping in mind that for-profit enterprises generally pay more.

According to an Associated Press report this week, “The head of a typical public company made $9.6 million in 2011.”

Fact Checker tried to find a company bringing in about as much as the Red Cross. The PNC Financial Services Group out of Pittsburgh had $3.1 billion in net income in 2011 — and its CEO, James E. Rohr, earned about $11 million in compensation, according to Forbes. That’s 22 times more than McGovern.

Moving beyond pay, there’s the question of whether Red Cross donations help people.

Punches said it assisted 285 people after the Amtrak accident last year. It also provided support after the Reno Air Races crash, the Caughlin Fire and the Washoe Drive Fire.

“And with the (recent Topaz Ranch Estates Fire) in Douglas County, we had an evacuation center set up and provided meals,” Punches said.

Those are major examples, but Punches said they help at other times, too.

“If it’s a small fire, we work with local hotels so people can take a breath to decide what to do next, and we provide them with a debit card to pay for medications that need to be replaced and other immediate needs,” she said.

The Red Cross also provides services to the armed forces, such as rucksacks filled with hygiene and personal supplies for homeless veterans, as well as emergency communications at no cost to the families.

Punches said that not long ago, an Army soldier’s mother suddenly died; word was relayed within 51 minutes of receiving the news to him in Afghanistan, and arrangements were made to bring him home for the funeral.

She added that in 2011, 22 Red Cross volunteers from Northern Nevada were dispatched for 4,884 volunteer hours to help people affected by violent weather in the Midwest. And 20 local volunteers helped families impacted by Hurricane Irene.

For military-related Red Cross assistance, call 877-272-7337. For local Red Cross assistance, call 775-856-1000.

The verdict

A half-million dollars a year (or a million) may seem like a lot for the head of a nonprofit, but when that nonprofit is juggling $3.4 billion a year in expenses, that amount is more than fair when compared to what a similar CEO would make in the private sector and especially when compared with other nonprofits’ CEO compensation.

Truth Meter: 2

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