In this day and age, difficulties of executive compensation and governance are closely intertwined. We've a Sarbanes-Oxley mindset to thank for this. (Sarbanes-Oxley and its connection to nonprofit organizations) The IRS is normally concerned as to no matter if governing boards of nonprofit organizations exercising a enough degree of due diligence in setting the compensation for leaders of their organizations. The media appears to delight in reporting on executives of each private foundations and public charities who are receiving what lots of take into consideration to become unreasonably substantial compensation packages.
Identifying most effective practicesWhen speaking compensation, the IRS believes that exempt organizations should really concentrate on 4 essential governance regions:
- Building legal structures: Just about every board should really strive to set compensation in advance by disinterested board members on the basis of proper comparability information.
- Reporting all of the positive aspects: This suggests timely reporting of all financial positive aspects to officers, directors, and essential personnel on IRS Form 990.
- Getting timely: Organizations should really take care to report the positive aspects in the time period that they’re paid.
- Staying accountable: Boards that delegate compensation difficulties to committees nevertheless have the ultimate responsibility more than the compensation selection.
- Staying away from payments to private folks: The Internal Income Code says that the assets of an organization can not be diverted for the advantage of private folks. If an organization pays or distributes assets to insiders in excess on the fair market place value on the solutions rendered, it is operating afoul of this rule, plus the organization can shed its tax-exempt status.
