Irreconcilable Differences

Irreconcilable Differences

Why do the poorest Americans give more of their income to charity than the rich do?

When I read an article recently about the Twin Cities’ highest-paid executives, including new Target CEO Brian Cornell, whose compensation package is worth almost $37 million, I reached for my calculator. That’s $711,538 per week; at 2,080 hours per year, that’s $17,788 per hour. Compare that to the new minimum wage for Minnesota that went into effect Aug. 1, where large employers such as Target now pay $8 per hour, which rises to $9.50 by 2016. Another way to view it is that, based on the most recent census data, Mr. Cornell will make more in three hours than the average household in Minnesota makes in a year.

Now, I would be less than truthful if I didn’t say that some of my motivation for becoming an executive was money, status and power. I don’t begrudge highly compensated executives for achieving wealth, as they also take on huge amounts of responsibility and risk, have a job span of less than four to five years on average, and deserve high compensation if they create significant shareholder value.

But I also am aware that the super-wealthy become more disconnected and insulated from those less fortunate as they climb the corporate ladder. In my case, I grew up poor in Lincoln, Nebraska, and know what it’s like to wear clothes from Goodwill and get a paper route at age 12 to help put food on the table. These memories have served to remind me that there are others who need a helping hand, and that those with wealth have the ability to provide that help.

“Wealth is not to feed our egos, but to feed the hungry and to help people help themselves.”Andrew Carnegie (1835-1919)

Andrew Carnegie serves as an outstanding example. In 1901, when Carnegie retired at age 66, he was the world’s richest man. His second career was to become the world’s greatest philanthropist. He spent the next 10 years founding the Carnegie Institution for scientific research, establishing a pension fund for teachers, building 1,700 libraries across America, creating foundations for higher education, and initiating an endowment to support world peace. By 1911, he had given away 90 percent of his fortune.

I wonder what Carnegie would say about the charitable giving habits of today’s wealthy. I don’t think he’d be impressed. According to research by Ken Stern, author of the book With Charity for All: Why Charities Are Failing and a Better Way to Give, in 2011 Americans with earnings in the top 20 percent contributed on average 1.3 percent of their income to charity. In contrast, those in the bottom 20 percent donated 3.2 percent, more than double the rate of the wealthiest.

I wanted to find out why the wealthy are so stingy compared with those with fewer resources to give. (And remember, those at the bottom income levels usually don’t take advantage of charitable tax deductions; they just give for the sake of giving.)

“I would rather have it said 'He lived usefully' than 'He died rich.'” — Benjamin Franklin, in a letter to his mother, 1750

Stern’s research revealed that people’s wealth not only affects how much they give to charity, but to whom it is given. The wealthy tend to support colleges and universities, health care organizations, arts organizations, museums and foundations to which they have a connection. The largest charitable donation in 2013 was from Facebook founder Mark Zuckerberg, who donated 18 million shares of Facebook stock (valued at $990 million) to the Silicon Valley Community Foundation. According to The Chronicle of Philanthropy, eight of the top 15 largest charitable donations in 2013 were given to institutions of higher education.

On the other hand, Americans in the lower fifth of income levels tend to direct charity to human services organizations focused on serving the poor. People give to organizations they believe will have a direct impact on the issues and programs important to them. As they become wealthier and their lifestyle changes, they lose awareness of the needs of the poor.

“Is the rich world aware of how 4 billion of the 6 billion live? If we were aware, we would want to help out; we'd want to get involved.”Bill Gates (1955-)

Apparently where you live and what your religious beliefs are also influence your charitable giving, according to a 2012 article in The Chronicle of Philanthropy. For example, in Utah and Mississippi, people give the greatest average income share (7 percent) to charity, while New England gives the least (3 percent). (Minnesota residents on average give 4.1 percent of income.)

“The highest use of capital is not to make more money, but to make money do more for the betterment of life.”Henry Ford (1863-1947)

Living among the affluent seems to depress giving as well. When those earning more than $200,000 per year account for more than 40 percent of households in a zip code, they give an average of 2.8 percent to charity, whereas the national average for those earning $200,000 is 4.2 percent.

Individual philanthropy is one of our country’s foundational freedoms, but my fear is that if philanthropy favors the elite instead of the less fortunate, it will become an endangered freedom. Other developed countries tax at significantly higher rates to provide social services to the poor, and as a result have significantly lower charitable giving levels. Their belief system is that the government, not individuals, should make these decisions. The American tax code that rewards charitable giving is built on the idea that we should have the freedom to direct our donations where we want.

To be clear, I am not picking on the wealthy. Indeed, without their charitable contributions, many of the needs in our country would not be met. However, my greatest hope is that wealthy individuals recognize the irreconcilable difference between their giving and that of lower-income Americans, and then increase their giving.

Wouldn’t it be great if CEOs were incentivized to donate 50 percent or more of their bonus to charity? I do not recall ever hearing of such an arrangement, but I think it’s an interesting idea that boards of directors may want to consider. If not, maybe JFK’s statement in his inaugural address will be a foreshadowing of the future:

“If a free society cannot help the many who are poor, it cannot save the few who are rich.” John F. Kennedy, Inaugural Address, Jan. 20, 1961 

Mark W. Sheffert (mark@manchestercompanies.com) is founder, chairman and CEO of Manchester Companies, Inc., a Minneapolis-based performance improvement, board governance, and litigation advisory firm.

Related Stories