Once again, I’m turning the floor over to Mary Schaefle, our resident non-profit number cruncher…
If you’ve been following the financial posts, you know the previous posts focused on income – endowment and investments in Part I, and ticket sales and fundraising in Part II. It’s time to take a look at Minnesota Orchestra’s spending habits, or expenses. We’ll be able to review detail in some areas but will more often be looking at expenses grouped into categories.
The Big Picture – What Got Cut?
The nonprofit tax forms (990, available via Guidestar.org) categorize costs, allowing us to see what increased or decreased between 2009 and 2011. The single largest drop, $966,802, was in travel (Part IX, p10). 36% of costs cut by Orchestra management were the result of the calendar and lack of an international tour.
The second largest decrease is “other fees for service” at $742,701. Fees for service are payments to any organization or individual providing a service to the Orchestra, for example legal or audit fees. The “other” subset includes payments to a guest artist, to a soloists’ management company, and to the architect and project management company for the Hall renovation.
We can look at “other fees for service” in a different section of the 990 where the highest paid contractors (Part VII, p8) are listed. The types of organizations shifted from 2009 with more than half of the contracts paying guest artists to 2011 when 4 of 5 were related to Hall renovation and capital campaign contracts. From my point of view, what’s important about this shift is the decrease in guest artist fees. I’ve thoroughly enjoyed seeing Orchestra musicians as soloists, but I don’t know if or how the star power factor – or lack thereof – impacts ticket sales.
Going back to line items with the largest cuts, advertising and marketing came in third with a decrease of $579,655. We know management cut the number of concerts (see Part II), but I’m not sure that would have a proportional impact on advertising. You still have to print a season brochure, advertise concerts and so on. It could be a shift to online promotions versus paper. It could also be more obvious – a decrease in the volume of advertising.
The second and third cuts – guest artist fees and marketing – are troublesome to me. When you combine these with the decrease in number of concerts, it looks like a recipe for decreased income for the Orchestra. There may be other reasons for those changes. My previous posts suggested an outside expert review of the Strategic Business Plan, and this is one more reason for the review.
Who Gets Paid How Much?
Musician base salary is eighth among symphony orchestras (2011 data). My comparison shows Mr. Henson’s pay eighth among US symphony executives (2011 990 data), while Osmo Vänskä is seventh among music directors (McManus, 2010 data). Viewed through this lens, pay seems comparable between groups.
In response to the recession, musicians agreed to a one-year pay freeze contributing $4.5 million in savings to the Orchestra. In exchange, Mr. Henson and Maestro Vänskä agreed to 7% and 10% decreases in pay respectively. Their actual decreases were 3.5% and 4%. Executive contracts often include scheduled annual increases (just like the musicians’ contract) which would explain the difference. Two additional paid staff are included on the 990. COO Neu took a slightly larger decrease of 7.5%, while CFO Ebensteiner saw a substantial increase of 25.5%. Compensation of the most highly paid musicians is also listed. When viewed as a group, salaries and total compensation were flat. I chose to look at them as a group since pay fluctuates with solo appearances. This only includes five musicians, so can’t be considered definitive.
Neither the financial statements nor the tax forms split musician and administration costs, but we do know that 74% of the Orchestra’s costs are salary and benefits. Management has pointed to rising musician costs as a critical issue in their financial challenges. A Star-Tribune business columnist jumped on board writing “Orchestra’s Disease is Economic”. If you want to learn more about the argument that orchestras aren’t or can’t be efficient, I highly encourage you to read Drew McManus’ recent blog post on the topic – including the comments section. As someone who has worked in nonprofit service organizations for decades, I can tell you that employee costs are always a significant portion of the budget, and the conversations about how to control those costs never seem to go away.
So – Is There a Conclusion?
Frankly, the reason it has taken me so long to write Part III is my attempt to define a conclusion. I’ve stared at the numbers over and over, waiting for something to pop out. I’ve charted, analyzed, sliced and diced. Is it income? Is it expenses? Is there something else we could or should change? Is it a tweak or are dramatic changes needed?
I decided the answer is in the title. My guest posts were intended to shine some light on the facts of the financials, and I hope I’ve done that. In labor disputes – or really any dispute – figures and percentages are thrown around to prove and disprove points of view. They can be taken out of context. Financials are facts to me, and should be verified.
Although they are fact, the financials do represent something I believe is more important. They represent how an organization chooses to do its work. I ended the last post saying we needed to get the Minnesota Orchestra playing and keep them playing. After working through their financials, I’m convinced that is possible, and also convinced that an objective, outside view will help us get there.
I hope you’ve enjoyed this series of posts as much as I have. They’ve been a fantastic little peep into how the Minnesota Orchestra operates behind-the-scenes. A round of applause and a brava for Mary is in order.
Please feel free to join Mary in the comment section. I’ll be there, too, once I digest the information in this post.
And MOA…we’re looking at you. Let’s get a dialogue going. We’re adults. We can handle it!