All non-profit boards have a fiduciary responsibility to approve “reasonable and not excessive” compensation plans and are able to be held personally liable for excessive compensation. As a board member, you can take an active role in keeping this on track and avoid issues with the IRS or bad media exposure.
Over the years, the shape of executive compensation has shifted. The subject itself often provokes strong emotion, therefore it is important to gain public trust and be aware of the regulations that govern this kind of compensation.
In years past, the majority of nonprofits did not have incentive plans, but instead used discretionary bonuses as the approach to pay adjustments. Those days are all but gone in the wake of increased scrutiny. Even if your nonprofit chooses to use discretionary payments, these are 10 key tips to ensure that nonprofit boards can defend their approach should any questions arise:
1. Be familiar with nonprofit rules for executives.
2. Articulate an executive compensation philosophy.
3. Compare your compensation plans with plans from comparable organizations.
4. Formally validate the competitive value of the total compensation package on a regular basis.
5. Review the public information listing compensation and conflicts of interest on IRS 990 form.
6. Ensure authorized individuals approving transactions do not have a conflict of interest.
7. Monitor deferred compensation plans with Section 409A compliance.
8. Carefully monitor retirement program expenses to the organization.
9. Ask the tough questions and analyze the data to protect the organization.
10. Document all reviews, questions, and decisions to show due diligence.
It is necessary to provoke reasonableness in order to protect the status of a non-profit board and its members. As part of these steps to a more defensible compensation strategy, gain an outside perspective and ask for advice from an expert. With deep compensation expertise at all levels in both private, public, and non-profit sectors, The Overture Group’s Compensation Team is ready to help. Visit our blog or contact us today.