Nonprofit Compensation: Tips on Using Comparability Data

By Michael Berger

www.nonprofitlawblog.com

Executive compensation can be a tricky area for the board of a nonprofit organization. As we’ve discussed previously, the recommended process for determining the appropriate compensation package for an executive of a nonprofit organization is to conduct a review of what similarly-sized organizations, in the same geographic area, offer their executives (of comparable level). But many boards may be wondering where and how to find the data necessary to conduct a proper and sufficient compensation comparison. Here are some tips that will assist a board in finding appropriate comparability data.

What Data is Sufficient?

The IRS requires comparability data to be from similarly-situated organizations, for equivalent positions, in the same community or geographic area. Therefore, three types of comparisons should be made:

1. Position. In general, compensation should be commensurate with the duties and responsibilities of the job. When comparing one compensation package to another, the comparison should be based on substantially similar duties and responsibilities. For example, is the job local or national in scope? How many employees, departments, facilities, and/or entities are managed by the person, if any? It may be inappropriate to compare a person who manages only a single facility or department with a person who manages multiple entities and employees, even if their job titles are the same. Titles do not equate functionally comparable positions. A full-time position should not be compared to a part-time position, and vice versa. Likewise, compensation covering the whole year is generally not comparable to compensation for only part of the year, unless it is pro-rated. Lastly, be careful when using compensation for the final year of service because generally final compensation includes additional payments such as severance.

                 Read more: