Is Your Comparable Compensation Data Actually Comparable?- Part 6 in a Series

Once the board of directors has determined who will be leading the compensation process (full board or a compensation committee) and has discussed the organization’s goals and compensation philosophy, it’s time to gather comparable market data. This is a crucial step to ensure that decisions are made using good information.

The IRS’s reasonableness standard is a helpful guidepost: reasonable compensation is what would ordinarily be paid for like services by like enterprises under like circumstances. “Like enterprises” should be identified in order to gather the most relevant compensation data and to comply with the rebuttable presumption of reasonableness. Factors to consider include:

  • Mission or Category (e.g., education, health, arts, etc.)
  • Size (e.g., total expenses, full-time equivalent staff, endowment size, etc.)
  • Region (e.g., Pittsburgh, state of Pennsylvania, northeast region of the United States, etc.). Incorporating the region factor will take into consideration geographical differences in pay, such as the difference in compensation levels between, for instance, New York City and rural Indiana. Another consideration is whether the organization recruits only locally or has a national presence and performs job searches in the national marketplace.

Once a comparable peer group has been determined, it’s important to match positions based on a functional comparison of duties. The role of chief operating officer, for example, may mean different things in different organizations. Any specific requirements for the position should also be considered, such as fluency in Spanish, law degree, etc.

Other factors to consider include determining whether length of service and experience is comparable to those serving in positions within the peer group.

The next step is to gather compensation data, which should be obtained from Forms 990 of the identified comparable peer group as well as from available compensation surveys. Check out the next post in this series for more information on where to get this data and potential pitfalls.

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.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2023 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Frauds of the Rich and the Famous: The Star-studded Saga of Jennifer Shah
Frauds of the Rich and Famous: The FTX Collapse and the Chrisleys
Frauds of the Rich and Famous: Billy McFarland and The Fyre Festival
Fraud Week 2023: Frauds of the Rich and the Famous
Gainful Employment Disclosures in Higher Education
Protect Your Students, Faculty and Staff: 3 Common Cyber Attack Methods to Watch Out for in 2023
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.