Highly effective Boards understand that one of their core duties is to ensure that organizational compensation decisions are well-founded and follow generally accepted standards. A compensation philosophy establishes a consistent process by which Board leaders can fulfill this duty. It also serves as a necessary complement to the Board-CEO relationship, and critical tie to discussions of performance and organizational equity.
In developing a Board's approach to compensation decisions, the IRS provides nonprofits a three-step process to determine that compensation is reasonable and not excessive. This process requires Board independence, review of comparable salary and benefits data, and documentation of the factors considered by the Board and the decision reached.
A thoughtful and well-developed compensation philosophy and process positively influences the organization’s capacity to:
Attract key leaders and retain high-performing staff members
Demonstrate a link between performance and compensation
Promote internal and external equity
Maintain satisfaction and morale
If your organization is looking to enhance the thoughtfulness and intentionality of its approach to performance and compensation, let's talk!