Look before determining executive compensation

Description

Abstract: When a nonprofit sets the salary for an executive director or other individual key to the organization, the board of directors wants to make sure it’s paying what’s necessary to attract or retain the most qualified, capable individual for the position. But that’s not the only consideration that should be on the radar screen. IRS regulations prohibit 501(c)(3) and 501(c)(4) organizations from engaging in an “excess benefit transaction” with a “disqualified person.” This article explains those terms and the steps that charitable organizations should take to be sure that compensation is “reasonable” by IRS standards.