Fair and Reasonable Compensation

Tax regulations require that the compensation paid to nonprofit executives be “fair and reasonable.”  A board is expected to make that determination based on comparables – what a similar executive would earn for a similar job.  For many nonprofits, getting the information necessary to support a decision on compensation can be difficult.  GuideStar just announced a new service – CEO Compensation Checkpoint – that “evaluates a nonprofit CEO’s compensation against a group of peer organizations” and then prepares a report for use by the board.  This blog is not endorsing GuideStar’s service or product, and there is a fee for the service, but it is useful to know that the service exists.  It is also a reminder that a lot of IRS regulations, while adopted with the worthy goal of promoting “good” behavior by nonprofits, will cause many nonprofits to incur extra expenses.