Compensation Setting Procedures Archives - Charity Lawyer Blog

Employment

How Should Your Nonprofit Set the Compensation of its Executives?

A nonprofit’s board of directors is responsible for establishing the compensation (salary and benefits) for the chief executive (typically referred to as either the Executive Director, the CEO, or the President). Although the IRS does not provide specific dollar amounts or an acceptable range of compensation levels, they stipulate that compensation must be reasonable and not excessive; “reasonable” is defined as the value that would ordinarily be paid for like services by like enterprises under like circumstances.

May 11, 2023 No Comments

Starting a nonprofit

Excess Benefit Transactions

Before 1996, the only option the IRS had when faced with a tax-exempt organization that had violated the private inurement rules was to do nothing or to revoke the organization’s tax-exempt status, a penalty that often punished the organization’s beneficiaries more than the insiders who benefited from the inurement. To cure this problem, Code Section 4958 was added to the Internal Revenue Code in 1996 to provide the IRS with an “intermediate” tool between the extremes of either ignoring the problem or revoking the nonprofit’s tax-exempt status.

January 3, 2022 No Comments

Should Non-Profits Pay Board Members?

In a recent post, Non-Profit Urban Myths Debunked, we discredited the myth that non-profit board members cannot be paid for their service. We related that IRS regulations do allow non-profit board members to be compensated for their services. We explained: First, non-profits can”and many do”enact board reimbursement policies for reasonable expenses incurred in the performance of board duties, such as travel to organization events, purchasing supplies for board business out of pocket, etc. Second, although most non-profit board members serve as volunteers, board members can be paid as board members for their services.

August 26, 2019 2 Comments

To Pay or Not to Pay – Compensating Nonprofit Founders

Many founders feel guilty accepting reasonable compensation from the nonprofit they have nurtured but if they continue to forgo a reasonable salary, they risk erecting a house of cards that will fall apart as soon as they burn out.

September 4, 2014 No Comments

Governance

Best of CharityLawyer Blog 2013

At the end of each year we like to look back at our most popular posts to evaluate what our readers are finding most interesting and useful on the blog.

January 3, 2014 No Comments

Fundraising Regulation

Compensating Nonprofit Fundraisers

Many small nonprofits without sufficient funds to hire a fundraiser on a fee for service basis view percentage based compensation as a godsend. First, percentage based compensation permits the nonprofit to gain the assistance of a professional fundraiser without any risk to the nonprofit’s bottom line. In addition, the fundraiser is likely to be more motivated if they are paid based upon the funds raised.

November 12, 2013 No Comments

Lessons to be Learned From the Arizona Fiesta Bowl

Could one man really do that much damage to an Arizona institution as high profile and important as the Fiesta Bowl? More likely, the nonprofit scandal of the year was a group effort fueled by a dysfunctional board. The Fiesta Bowl board bears all the hallmarks of a board more interested in administering than governing the organization. Still, there are lessons to be learned from the Fiesta Bowl’s governance and oversight failures.

April 8, 2011 No Comments

Setting Nonprofit Executive Compensation

In light of the heightened interest of the I.R.S., Congress, state regulators, and the media in executive compensation, as well as heightened penalties, exempt organizations should strongly consider increasing the amount of time and attention they devote to investigating, deliberating, documenting, and reporting executive compensation. To facilitate the careful review that is demanded, tax-exempt organizations that employ an executive staff should consider implementing the following practices and procedures:

March 8, 2011 No Comments

Governance

Nonprofit Directors and Trustees – Should Board Service Pay?

Trustee compensation is a sensitive topic in the philanthropic world. Many people believe that board members should serve out of a sense of giving back to their community. However, the philanthropic world is diverse and there are many positions that require extraordinary talent and an extraordinary time commitment to lead them. Nonprofit organizations are also increasingly complex and subject to complex rules and that make significant demands on that talent. Increasingly, board members face the potential for liability if they fail to fully adhere to these complex and fast changing rules.

February 18, 2011 No Comments

Compensation Setting Procedures