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EXECUTIVE Employee Contract
and compensation rules
Executive Employee Contract
Discussion
While a nonprofit may wish to
preserve "at will" status for most of its employees,
employment contracts with NPC
executive directors or chief employed officers are essential to a
businesses continuity plan. They provide security to the NPC as well as
the executive. An employment contract should provide a
balance of obligations (i.e, length, duties, etc.), reporting chain
(i.e., board of directors) and benefits for the executive. A link
to a sample
contract is
provided below. However, each state may have varying requirements and
contracts should be reviewed by a local attorney.
Helpful Information
Executive
Compensation Rules
Discussion
In 2005 the IRS issued the final
regulations on Intermediate Sanctions. These allow the IRS to levy excise
taxes on nonprofit organizations and their managers for transactions that are
found to provide an “excess benefit” for insiders, generally members of the board
and key influential employees (chief executive officers, chief operating
officers, chief financial officer or even PIs who exert influence over
spending decisions).
To protect the organization and managers, nonprofits should carefully document
all transactions involving insiders, ensuring that no one involved in the approval
process has a conflict of interest or receives a benefit greater than
the value of the service provided or the item purchased.
Executive compensation must be
justified by appropriate
comparability data, including compensation paid by similar nonprofit and for profit
organizations in the same geographical area. In board meeting minutes, document 1) the data used as the basis for determining compensation; 2) who
was involved in the decision; and 3) verify that no one involved had a conflict of
interest.
While the IRS does not provide a threshold, it is commonly understood
compensation (salary, fees, bonuses, liability insurance premiums, all
other compensatory benefits, taxable and nontaxable fringe benefits,
etc.) paid to highly compensated (defined as $110,000 for 2009) insiders may be subject to scrutiny.
Linked below is a PDF of an IRS
document that discusses executive compensation and provides a simple
checklist for boards to use to ensure compliance with the regulations.
Comparability Data
There are many ways to obtain comparable compensation data. An
entire industry of nonprofit compensation consultants now exists to help
nonprofits meet the IRS requirements. For NPCs not wishing to
incur this expense, check with the local labor board, the state
association of nonprofits or the Chamber of Commerce. Many of these now
collect and make available compensation information. Additionally, there
are a number of web sites offering salary data. One of these is
www.guidestar.org which collects
compensation data from IRS form 990s and makes it available for a modest
fee. Additionally, the affiliated university may have comparable
positions.
For NPC executive directors, one possibility may be to identify a VA
position with a comparable level of responsibility and to use the
appropriate geographically adjusted pay grade as the basis for NPC pay.
Helpful links
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