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.
The Washington Post has identified over 1,000 nonprofit organizations that have reported a “significant diversion” of assets. Its important to note that there are over 1,616,000 tax-exempt nonprofits in the U.S. today; thus, these filings represent less than 1% of tax-exempt nonprofits. It’s also interesting to note that a quick review of Arizona’s list includes only 21 organizations – most of which reported the diversions in a clear, transparent, and confidence inspiring manner.
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:
The Chronicle of Philanthropy reports that Sen. Grassley is once again attempting to change the rules that impact how certain exempt organizations set executive compensation. This time, Sen. Grassley wants to do away with the “rebuttable presumption process” that exempt entities have been relying on to provide some measure of assurance that their compensation decisions will not trigger intermediate sanctions.
To ensure its decisions will stand up to the scrutiny of the media, regulators, and donors, and protect the employee as well as the board from personal liability, nonprofits that employ executive staff should consider implementing practices and procedures that ensure its executive compensation procedures are thorough, well-documented, and free of conflicts of interest.