Who Should Handle Compensation Matters on a Nonprofit Board of Directors? Part 3 in the Series

For small or medium-sized boards, executive compensation may be handled by the entire board. For larger boards of directors, though, it may be useful to delegate executive compensation matters to a special compensation committee in order to ensure adequate time and consideration is dedicated to this detail-oriented task. Alternatively, some organizations assign executive compensation to the board’s executive committee. Regardless of which committee members are involved in the process, the full board should have an understanding of the compensation as it relates to the chief executive officer and any other officer’s compensation that will become public knowledge as a result of being reported on the Form 990.

All board members should be able to communicate the rationale behind executive compensation, as well as understand the process used to arrive at those decisions. The board must decide if using the two-step process of committee work followed by full-board discussion would streamline the process or simply add an additional step.

Another important consideration is to take an inventory of each board member’s skills and experience. Do board members currently have the expertise to adequately address executive compensation issues? What additional resources should be part of the process—legal counsel, compensation consultant, tax advisor or others?

The Compensation-Setting Process

Once the board has determined the internal structure, it needs to establish the overall executive compensation process. Steps can include:

  • Review the organization’s mission, goals and strategy as it relates to its compensation plans. Review (or develop) the organization’s compensation philosophy.  (Further information will be provided in the next post in this series.)
  • Assess job responsibilities, job description(s) and job title, if necessary. Conduct annual performance review(s), including a review of effectiveness and the achievement of any individual goals set in the prior year. Set annual and long-term goals for the future.
  • Gain an understanding of the marketplace and gather data on compensation at comparable organizations.
  • Approve the compensation package. Any individual with a conflict of interest should not be involved in the discussion or voting.
  • Record contemporaneous documentation that will satisfy the rebuttable presumption of reasonableness. 

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.

© 2022 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
Student Loan Forgiveness Scams on the Rise
President Biden Announces Student Debt Relief Plan
Accelerating Charitable Efforts Act Under Consideration
Illumina Cybersecurity Vulnerability Advisory Issued to Healthcare Providers
Nonprofit Staff Cuts Due to Lack of Q4 Retention Credit
Lincoln College Closes Due to Ransomware Attack
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.