By statute, the board is responsible for appointing an executive director. The board is also responsible for supervising the executive director as well as periodically evaluating the executive director’s performance and setting the executive director’s compensation.
Hiring an Executive Director
At some point, each NPC must go through the process of hiring a new executive director. The hiring process should begin with creating an executive director job description.
The next step is to recruit a new executive and the board of directors should decide whether to recruit candidates locally or recruit nationally. Example of places to post an Executive Director position announcement include:
Executive Employee Contract
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.
Executive Compensation Rules
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.
Helpful IRS links:
There are many ways to obtain comparable compensation data. For NPC executive directors, NAVREF complies executive director compensation data from NPCs' annual IRS Form 990s.
Also, it may be possible to identify a VA or university position with a comparable level of responsibility and to use the appropriate geographically adjusted pay grade as the basis for NPC pay.
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 (to identify yours, go to National Council of Nonprofit Associations - http://www.ncna.org/) or the Chamber of Commerce. Many of these collect and make available compensation information.
Additionally, there are a number of web sites offering salary data:
Guidestar: www.guidestar.org Compiles compensation from IRS Form 990s
Salary.com: www.salary.com Leading provider of on-demand human resources software that help businesses and individuals manage pay and performance
PayScale: www.payscale.com Provides an immediate and precise patent-pending real-time profiling system that indexes custom employee attributes and specific job titles for every industry
JobStar: www.JobStar.org Offers government, nonprofit and other salary survey links
Monster.com: www.Monster.com Provides an online salary calculator
CareerBuilder.com: www.CareerBuilder.com Provides an online salary calculator
Bureau of Labor Statistics' Occupational Outlook Handbook: http://www.bls.gov/OCO/ Offers information, for hundreds of jobs, regarding the training and education needed, earnings, expected job prospects, what workers do on the job and working conditions
Glassdoor.com: www.Glassdoor.com Encourages people to post salary information anonymously
CNN/Money Web Site: money.cnn.com/ Provides cost-of-living comparisons for relocations
APP.com: http://www.navref.org/newsletter/2010/update_05-06-2010.htm Publicly available base salary information for general employees
Office of Personnel Management Salary Tables and Related information: http://www.opm.gov/oca/10tables/index.asp Federal pay schedules and locality pay rates