As discussed in the previous post, comparable compensation data can be obtained from Forms 990 of the identified peer group, as well as from available compensation surveys. It’s important to understand the various compensation sources that can be relied upon in compensation decisions.
Form 990 Data
Sources such as Guidestar (www.guidestar.org) make the process of finding Form 990 data relatively straightforward once comparable organizations have been identified, but some caveats are necessary in order to properly adjust and interpret the data:
- Be aware that compensation data reported on the Form 990 might not be a full year’s total for the particular position.
- When analyzing deferred compensation, keep in mind that the IRS requires organizations to report deferred compensation the year it accrues and again in the year it’s paid.
- Form 990 compensation data involves a lag of at least one year and often longer.
Determining what compensation data is available beyond the Form 990 can be challenging and time-consuming. Local or regional associations of nonprofits may be aware of industry data. A compensation consultant is another good resource for determining what surveys are available.
Avoid relying on information from headhunters or recruitment agencies, since their data may not be representative of overall market conditions. Data will often be limited to organizations that are actively hiring and may skew higher than average for the market as a whole. Additionally, don’t rely on free data found on the internet. Information offered on many sites is self-reported and has not been verified for accuracy. Moreover, the data runs the risk of not being representative of the market.
Once survey sources have been gathered, care must be taken to understand what types of compensation are included and the underlying methodology used. Decisions must be made regarding the most comparable data cuts as well as what decile to use. Many organizations select the median, although there may be justification for a higher or lower decile; consider your organization’s compensation philosophy, if applicable.
Some organizations gather market data internally; others use a compensation consultant to provide analysis. For those considering the latter, a consultant can help boards understand the marketplace and select and interpret the most comparable compensation data available. The consultant can also provide training to board members in the area of executive compensation and the rebuttable presumption process.
Schneider Downs Business Advisory Group provides compensation studies to aid organizations in understanding the market and documenting their reasonable compensation processes. Please contact us to discuss how we can assist you with your advisory needs.
This post is part of a series to provide best practices for nonprofit boards to determine executive compensation.