Canada's Best Charities 2020: Methodology - Macleans.ca

Canada’s Best Charities 2020: Methodology

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To identify Canada’s best charities, we start with a list of more than 700 analyzed by Charity Intelligence. The Canadian research organization produces standardized financial reports on all of Canada’s major charities, as well as smaller ones across the country. Read more about why we use this data here.

To be included for consideration in our ranking, charities must meet the following criteria:

  • They must have a Charity Intelligence report updated for the 2016 tax year or more recent
  • They must have $2 million or more in annual revenue
  • They must be thought of as charities by most Canadians. For example, universities are registered charities that accept donations, but we exclude them from the ranking.

From here, we assess charities based on the following criteria:

Financial metrics: 60 per cent. We look at the following metrics:

  • Overhead ratio: 15 per cent. We consider the proportion of a charity’s annual revenue that goes to administrative costs, awarding more points to leaner charities. The exception is when a charity reports spending less than 2 per cent of its revenue on overhead, less than we consider enough to operate productively.
  • Fundraising ratio: 15 per cent. It costs money to make money, and charities may put on galas, send out direct mail or pay for advertisements to entice donors to open their wallets. Full points go to charities that keep the amount of every donated dollar spent on fundraising under 15 cents, with partial points awarded up to a maximum of 35 cents. Note: Not all charities separate administrative and fundraising spending in their financial statements, in which case we consider the percentage of total revenue going to those two types of costs combined.
  • Charity reserves: 15 per cent. Donors generally think of their money going out to help the needy right away, but sometimes charities build up large savings funds instead. We reward charities that keep donor money circulating, with full marks going to those that keep savings accounts under the amount that would be required to fund program expenses for three years.
  • Compensation of highest-paid employee: 15 per cent. Charity salaries are controversial. Many donors don’t like the idea of staff members taking home big paycheques when that money could be going towards the mission; charities counter they need to offer competitive pay to attract the best people. In the vast majority of cases, six-figure salaries aren’t something donors need to worry about — the median top salary for charities with at least one employee was between $40,000 and $79,999 in 2016. However, a 2019 Maclean’s analysis found charities that severely overpay their executive directors compared to the average among peers of a similar size tend to be less efficient and less transparent. Interestingly, charities that underpaid their staff performed worse as well. For this reason, we take points from charities that pay their executive directors less than $80,000 a year, regardless of size, or overpay them by more than $100,000 compared to other charities with similar operating costs. This is the only category where we use data from charity tax returns, because it’s not typically reported in financial statements.

Transparency: 40 per cent. We look at the following metrics:

  • Ease of access to financial statements: 10 points. Every donor should be able to look over a charity’s financial statements before giving. However, some charities make that easier than others. Full points go to charities that publish audited financial statements on their websites covering at least two of the most recent fiscal years.
  • Results transparency: 30 points. What do charities actually do with your money, once they get it? What programs do they run? Who benefits from them? What is the charity’s mission statement and how is its work tied to it? What problem is it trying to solve and is the charity making any headway? Charity Intelligence assesses how well charities communicate the answers to questions like these to donors on their websites and in annual reports.