Tag Archive for Non-Profit Board

Setting Executive Compensation: How Much is Too Much?

This is part of a series of articles focused on issues relevant to non-profit boards of directors

shutterstock_46389259In recent articles, I have outlined the roles and responsibilities of non-profit boards and focused on the legal and ethical responsibilities of individual non-profit board members. Now, I want to spotlight one very important task non-profit board members must complete carefully and strategically: setting executive compensation.

A non-profit’s chief executive is often the heart, soul and public face of the organization. The chief executive is responsible for leading and coaching staff members; overseeing revenue-generating and fundraising activities; making final strategic decisions to ensure the organization’s mission is advanced; and countless other day-to-day tasks.

Clearly, the chief executive position is vitally important to the overall success of any non-profit organization. So, how do you put a dollar value on something so important? In today’s hyper-competitive environment, non-profit organizations across the country are struggling to answer that question.

As we discussed in my previous article, the board of directors has the responsibility of hiring and setting compensation for executive leadership.

Study the marketplace: Of course, every non-profit organization wants to hire their first choice for the executive director role–but many quickly learn they’ve only budgeted for their third, fourth, or fifth choice.

Before going through the process of selecting a new chief executive, non-profit boards must find out the “going rate” for that position. That means analyzing the salaries and benefits of comparable positions in private, public, and non-profit sectors and comparing those salaries to what the organization is prepared to offer. Having in-depth knowledge of the current marketplace will help your board set expectations and budget appropriately.

Protect your bottom line: The board needs to find middle ground between compensation that attracts the top talent and cost-cutting strategies that help the organization fund its services. That means offering a salary range that the IRS calls, “reasonable and not excessive.”

The National Council of Nonprofits encourages non-profit boards to think carefully before finalizing a deal with a new executive leader and ask itself: “Are the assets of this non-profit being used prudently and to advance the mission?”

Play by the rules: The IRS has rules and regulations that aim to prevent non-profit organizations from overpaying their executive staff. If the non-profit board knowingly overpays an executive a salary the organization can’t afford, the IRS sees that as “excess compensation.” Penalties range from hefty fines to an organization losing its tax-exempt status.

Keep detailed records: Hiring a chief executive is one of the most important decisions a non-profit board has to make, and it should be documented as such. Non-profit board members will be asked by donors, supporters, reporters and perhaps the IRS to explain their hire and justify their salary and benefits.

Guidestar recommends a three-step process to ensure the board complies with IRS regulations and board members remain unbiased:

  • The board should approve compensation before an offer to the candidate is made and to ensure no board member has a conflict of interest related to the transaction.
  • The board should research comparable positions before approving compensation.
  • The board should document the decision-making process throughout the process.

Guidestar’s recommendations follow the IRS “rebuttable presumption of reasonableness” rules. In other words: The board is doing its due diligence and covering its bases while it makes a strategic, well-thought-out decision on executive compensation.

 

Hatch-Michelle-150x150

Michelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

 

The firm, with over 400 professionals and staff, offers a diversity of services, which includes auditing, accounting, tax, and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services, such as succession and estate planning, business technology services, employee benefit plan audits, litigation support, and valuation.  The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

Top 7 Responsibilities of Non-Profit Boards

iStock_000012107875_MediumNon-profit organizations in today’s business climate are expected to meet increasingly large demands while operating with small staffs and limited resources. In order to ensure sustainable success, non-profits must have in place effective, focused and committed leadership.

That starts with the organization’s Board of Directors.

Board Responsibilities:

Boards of directors (or boards of trustees) hold a great deal of responsibility in advancing non-profit organizations’ missions and leading the organizations toward successful futures. Some responsibilities of a non-profit board include:

  1. Strategic planning: The board should always be thinking about the “big picture.” From determining the organization’s mission and purpose to enhancing the organization’s public image, the board is responsible for the overall health of the non-profit.
  1. Selecting executive staff: Who will be the public face of the organization? That is one of the first and most important questions a non-profit board must answer. While the board operates behind the scenes to steer the organization in the right direction, the executive staff manages the day-to-day operations.
  1. Overseeing (and evaluating) executive leadership: The board should support the organization’s executive staff, making sure they have the resources and moral support they need to effectively do their jobs. Every organization hopes to avoid overturn, but – should the board deem it necessary – it does have the authority to remove executive leaders and team members.
  1. Budget approval: Serving as the non-profit’s governing body, the board is responsible for securing and strategically allocating financial resources in order to advance the organization’s mission. This is typically done through the approval of the annual budget.
  1. Setting compensation: While the board is not usually involved in setting individual staff salaries, they usually do this through the overall budget process.
  1. Fundraising: Non-profits’ annual budgets typically rely heavily on fundraising efforts. As the board is in charge of approving the organization’s budget, is is also responsible for ensuring the organization has the money it needs to fulfill its mission.
  1. Recruiting new members to the board: Membership on non-profit boards is typically very fluid. Board members step down for a variety of reasons, and new members are brought in to replace them. To ensure long-term success, an effective board will articulate clear prerequisites for members and offer training and guidance to new members.

Serving on a non-profit board can be a tremendously rewarding and enriching opportunity for any professional. But, as you can see, it also comes with a great deal of responsibility.

 

Hatch-Michelle-150x150

Michelle Hatch is a partner in our Non-Profit Services Group. She oversees audit and accounting engagements for non-profit organizations, including independent schools, trade associations, health and human service organizations and art, cultural and membership organizations. Michelle is also a member of the Employee Benefit Assurance Group and oversees audits for 401(k), 403(b) and defined benefit retirement plans.

 

The firm, with over 400 professionals and staff, offers a diversity of services, which includes auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services, such as succession and estate planning, business technology services, employee benefit plan audits, litigation support and valuation.  The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

Best Practices to Keeping Your Board of Directors Engaged

A strong, engaged board of directors is crucial to the success of any non-profit organization, no matter the size, mission or vision of that organization. Ensuring the board is engaged should be a focal point for the leadership of the organization and the board itself. It is not enough to have a full slate of board members. Each of those board members should have a clear role within the organization’s board of directors. Following are best practices in order to keep the board engaged and facilitate the fulfillment of the organization’s mission:

  1. Keep the focus on the organization’s mission. The organization’s culture should assist with all employees and board members in carrying out the mission of the organization. The mission should be at the center of all decisions made by the board and the organization. Board members and potential board members should understand the mission and continually review the activities of the organization to ensure they are in line with the mission of the organization.

  2. Continuously monitor the organization’s strategic plan, including the goals set by the strategic plan. The organization’s strategic plan is not something to file drawer or put on a bookshelf. At least twice a year a significant portion of the board meeting should be devoted to the review of the strategic plan. In addition, the strategic plan should be updated periodically, especially if significant events take place, such as staffing changes or program changes.

  3. Review the needs of the board continuously. How often does someone say to their fellow board members during a meeting, “I wish we had someone who could do that for us.” I’m sure every board has had this conversation. The board should continuously review the skills of the existing board members and identify the holes they may need to fill. For example, if the organization’s social media presence is not quite up to par, the board should seek out a potential board member that can help with social media, or someone who can guide the organization’s staff members, depending on the size of the organization.

  4. Create a clear committee structure. Committees are particularly important to small organizations that rely on board participation and volunteers. Committees are equally important to large organizations that require governance over several different programs and activities. The board should ensure all board members are part of a committee and that each committee has clear marching orders and tasks to complete. This helps board members understand their roles within the organization and keeps them engaged.

  5. Plan for the future. Succession planning for non-profit boards is important. Current leadership must work with their fellow board members to identify the future leadership of the board. This is extremely important in small organizations that are managed by the board of directors or volunteer organizations where the board members take on staff responsibilities. The current leadership should look for opportunities for those future leaders to take on responsibilities within the organization to allow them to grow their skills. They also need to keep an open dialogue with fellow board members regarding the future of the board’s leadership.

  6. Communicate. Keeping the board engaged requires a lot of communication. It is not enough anymore to fill a seat at a monthly board meeting and vote on the issues put forth by the chairperson. Decisions constantly need to be made, and committees and subcommittees are constantly working to accomplish the goals of the organization. The leadership of the organization, the board and the committees must continuously communicate with each other in order to make timely, informed decisions.

There is a lot of responsibility that comes with participating on the board of directors for an organization. The easier the organization and the current board leadership makes getting involved in the organization, the more talented future board leaders they will attract. Also, the clearer and more structured the board is, through use of committees and communications from leadership, the more engaged the board members will be. This will result in a more productive and effective board for the organization, allowing for the organization’s success in fulfilling their mission.

Jessie Kanter, CPA, is a manager in the firm’s Accounting and Auditing Department with 15 years of public accounting experience. She has provided audit services to a variety of clients, including non-profit organizations. Jessie’s focus is in quality control of financial statement audits in which she provides consulting on complex technical accounting matters and internal support and review for the firm.