First step toward meeting IRS requirements for ensuring fair and reasonable pay and benefits
Release Date: August 4, 2009
Washington, D.C., and Williamsburg, Va.—GuideStar, the leading source of nonprofit information, has launched GuideStar CEO Compensation Checkpoint, a new service that analyzes a nonprofit CEO's compensation within a group of comparable nonprofits.
IRS regulations require that the compensation paid to executives of tax-exempt organizations be "fair and reasonable." The definition of "fair and reasonable" varies from nonprofit to nonprofit, however; a number of factors, including an organization's mission, size, complexity, and sources of revenue, can affect it. To establish what is fair and reasonable, an exempt nonprofit must research what a similar position would earn at an organization that is of the same size and has a similar mission or field of activity.
If the IRS finds that executive compensation at a tax-exempt nonprofit exceeds the fair and reasonable standard, it can fine both the executive receiving the compensation and the board members who approved it, or even revoke the organization's tax-exempt status. To avoid these penalties, a nonprofit board must (1) base compensation decisions on appropriate research and (2) document its decision-making process at the time it approves the compensation.
GuideStar CEO Compensation Checkpoint meets both of these criteria. This service creates a customized report that evaluates a nonprofit CEO's compensation against a group of peer organizations. The report is dated and can be used to create an audit trail of the approval process. View a sample CEO Compensation Checkpoint report >
"The procedures an exempt organization uses to establish executive compensation are more important than ever," stated Bob Ottenhoff, GuideStar's president and CEO. "The IRS has significantly increased its enforcement efforts in the area of excessive compensation and has assessed millions of dollars in penalties for these types of violations in recent years. Further, the new Form 990 requires a nonprofit to describe the process used to establish the compensation reported on the return. By commissioning a GuideStar CEO Compensation Checkpoint report, a nonprofit can protect its CEO and board members from financial penalties and demonstrate to its stakeholders that its compensation practices are fair and reasonable."
GuideStar, www.guidestar.org, connects people and organizations with information on the programs and finances of more than 1.8 million IRS-recognized nonprofits. GuideStar serves a wide audience inside and outside the nonprofit sector, including individual donors, nonprofit leaders, grantmakers, government officials, academic researchers, and the media.
Suzanne E. CoffmanDirector of Communications(757) firstname.lastname@example.org
GuideStar is a 501(c)(3) nonprofit organization. Copyright © 2016, GuideStar USA, Inc. All rights reserved.