The common sense of compen$ation

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When questions about a nonprofit leader’s exceptionally high salary make the front page of the paper, we wince. A single nonprofit is being criticized for being an outlier, but it feels as if all charitable nonprofits and their values are being questioned.

At the National Council of Nonprofits, we are frequently asked, whether by the media, curious nonprofit staff members, or well-intentioned board members, how to determine what the appropriate compensation is for nonprofit staff.

The answer is, “it depends.” The legal process, promoted by the IRS, is to task the board or convene a group of board members (but not anyone employed by the nonprofit) to compare the salary and benefits of similar positions at similarly-sized organizations in your nonprofit’s geographic area, serving a similar mission. The process should be documented. A written description (such as in the minutes of a meeting) of what data was reviewed, and who was involved in the process, can protect the nonprofit and its board of directors from IRS penalties, in the unlikely situation that the IRS would find that the nonprofit approved compensation that was “excessive.” (Our website resources go into more detail about the process recommended by the IRS.) Of course, nothing can completely insulate a nonprofit from media scrutiny, but following the IRS “comparability” process, and taking pains to document all the research that went into approving compensation levels, offers protection against allegations of unreasonable conduct.

Comparing apples to apples, and proving that you did, is common sense, but it’s often hard to nail down data to use for the comparison. And the more practical question that comes up whenever a nonprofit is attempting to fill a position is: what salary level is attractive to candidates, but simultaneously won’t derail the nonprofit’s budget? Determining the appropriate salary and benefits for staff leaders is time consuming, but taking the time to “get it right” will make the hiring process more efficient and ensure that your nonprofit is attracting and retaining the talent it needs to advance its mission. Here are some ideas that may help:

 

  • Be very clear before you post an open position: What are the responsibilities of the position? How many years’ experience are truly needed? Also ask, what can your nonprofit afford to pay vs. what would it take to hire the talent your nonprofit needs? You may have to adjust your expectations.
  • What are other employers offering? Knowing this will give you an idea of what it will take to hire the talent you need. Search for the position you are seeking a candidate for, to gauge how the job market is pricing that job. Check the classifieds, and relevant online job boards. Some online job sites allow you to search only the postings that include salary data.
  • Consult a cost of living calculator (US Department of Labor). Or you can use this one (a humorous take on this topic from Blue Avocado).
  • Many state associations of nonprofits conduct periodic salary and benefits surveys and produce state-specific compensation reports that are frequently free for members.
  • The Bureau of Labor Statistics posts Occupational Compensation Surveys (OCS) for most geographical areas in the United States. The data are available by the type of occupation as well as by various levels within that occupation. While the exact job title you are looking for may not appear, there will be comparable responsibilities. The advantage of using these surveys is that they reflect data in your geographical area so you can get an idea of what employers in your area are paying for a specific job. Since your nonprofit is likely also competing with for-profit employers, don’t dismiss the BLS data as unhelpful.
  • Finally, don’t forget to make sure you know how your nonprofit will classify the worker (exempt or non-exempt), and to ensure that the proposed compensation meets updated minimum wage requirements in your state. 

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