According to the Standards for Excellence® code, the board should periodically review the appropriateness of a nonprofit organization’s overall compensation structure. However, some nonprofit executives are reluctant to involve the board in decisions regarding employee compensation levels beyond approving the salary line in the annual budget. If the board’s role is to manage the executive director and the executive director oversees staff, why should the board be involved at all?
All great nonprofits need great people working towards achieving the mission. A formalized salary structure review, conducted by the board every three to five years, can bring attention to current salary levels, and prompt the board to make greater efforts to keep staff salaries competitive. But even if a charity is paying employees at market rate, a periodic board-level review can assure fairness, prevent discriminatory practices, and keep the highest paid employees from moving too far ahead of everyone else. Considering that the issues that give rise to IRS assessments most often concern excessive salary and incentive compensation, having more eyes on the decisions being made in this area gives the organization one additional layer of protection.
Did you Know? The Standards for Excellence Educational Resource Packet, “Compensation and Employee Evaluation” includes a discussion on the board’s role in reviewing executive compensation and the overall compensation structure of the organization. This packet also gives specific guidance on how to conduct a salary structure survey. Members can download this packet free. Not a member? Join now!