How a compensation consultant can help determine an appropriate nonprofit executive director salary.

Posted: June 30, 2020

Executive salaries in Corporate America are highly scrutinized, offering many examples of systemic abuse and unreasonable perks. This phenomenon is not solely isolated to the forprofit sector however. Nonprofit organizations are also under the watchful eye of the IRS. Certain restrictions are placed on nonprofits to keep their compensation packages from going overboard. It can be difficult for a nonprofit organization to find the balance between “reasonable” and “competitive” as they seek to procure and retain ideal candidates for executive roles. How can a nonprofit organization best determine a fair and competitive executive director salary? In determining an executive director salary, the board of directors of any nonprofit is expected by the IRS to come to a salary decision based on the use of an “independent body”. This will help ensure that the ones making the decisions are not directly benefiting financially or otherwise. They are also expected to weigh their determinations on comparable salaries and benefits within similar organizations. A compensation consultant can be an ideal way to achieve all of these stipulations and ensure that a nonprofit board of directors is creating an appropriate yet competitive compensation package. Compensation consultants are responsible for gathering relevant and comparable salary and benefit information and then working with internal compensation committees to establish appropriate salaries. This will also involve the particular assets that an executive director brings to the table and their perceived worth in the market. These are vital considerations when a committee agrees on a salary that must meet the demands of the IRS and also provide a competitive edge in the interest of their organization’s success. Incentives and benefits are also something that a consultant considers when evaluating a nonprofit executive director salary. Essentially all of the employment terms including incentives and pay scales are taken into account by a compensation consultant. Comparable data for salary details in similar organizations is vital for a nonprofit to ensure that they are making a sound decision that will hold up when defended. This should also include an assessment of salaries in the for-profit sector in order to conduct thorough research. Basically in order to create reasonable employment terms, comparisons to other organizations’ pay structures are paramount. Another value that a consultant can add for a nonprofit organization is ensuring that a proposed executive director salary will align with and promote the growth goals of the organization. If a proposed salary agreement is set too high, or incentives are too generous, it could potentially harm the future of the organization. It is possible for a compensation committee which had hoped to remain competitive to offer too high a salary for their executive director and thus cause more harm than benefit to their own growth. Executive compensation consultants are an important tool for any organization, whether for profit or not. They will help to ensure that IRS protocols are adhered to, that a competitive executive director salary is met, and that the terms of employment will not have a negative impact on the growth of the organization. To learn more about maximizing executive salary, visit our Contact Page, or contact us directly by email at or by phone at 415-618-6060.