Posted: September 8, 2020
While a non profit organization is generally dedicated to furthering a social cause and using its revenue towards this cause, rather than paying the surplus to shareholders and board members, it does still need to pay its executives and other crucial workers. The revenue that is dedicated to its social goals comes from surplus, meaning that the initial piece of revenue is focused on the operating expenses. To remain financially responsible and maintain a well-functioning organization, non profits need to have paid staff members. A non profit board of directors controls the organization and most commonly they will hire an executive director. The executive director has the important role of overseeing the different departments that make up a non profit organization. To some, competitive executive director salaries in the non profit sector evoke the idea of dishonesty or a lack of accountability. It can give the impression of deception or malaligned internal motivations that go against the overarching cause of the non profit. Salaries that are too low, however, may not be competitive enough to attract adequate talent or encourage executive retention. So, how do board members decide on how much to pay for a non profit executive director salary? One way that a non profit board of directors can ensure that they are creating an ideal executive director salary is by hiring a compensation consultant to help. But what are the factors that help make the very important decision of what to offer a new or pre-existing director? The executive director of a non profit is responsible for the day to day activities which will dramatically influence the success of the organization. A major factor in determining a non profit board of director salary should be the avoidance of financial strain of the organization. A non profit that is limited or constrained by a disproportionate executive salary will not likely succeed. The board is responsible for maintaining a manageable overhead in order to produce capital for its cause. A non profit with a dramatic overhead will likely prove to be ineffective, failing to raise money for its social cause. One approach that can be used by board members to help make decisions on salary amount is looking at opportunity cost for potential directors. In other words, looking at what a desired future executive director could make at another company is helpful in determining a compensation package. Evaluating the salaries being paid at comparable organizations can be a helpful tool for the board to utilize. In addition to that comparison, evaluating the considered executive director salary in relation to other paid salaries within the non profit is crucial. It should look reasonable when compared directly. In the case of salary considerations for pre-existing executive director salaries, it is important for a board of directors to avoid treating a new salary as a reward for previous performance. The previous year can help predict the upcoming performances of an executive director, but they should be paid based on a projection, not past data. All in all, the decision of what to pay an executive director is a difficult task for a non profit board of directors. Weighing all of the above options in addition to considering the advice of a compensation consultant should help board members determine an ideal salary. To learn more about maximizing executive salary, visit our Contact Page, or contact us directly by email at email@example.com or by phone at 415-618-6060.