Whether you are a board member, donor or nonprofit professional, the compensation of key employees at nonprofit organizations can often be a hot topic. My friends in the private sector are often baffled by this concept that salaries are public information – welcome to the world of nonprofits.
Where can you access compensation information?
The compensation of the principal at nonprofit organizations is available on the IRS 990, the tax return nonprofit organizations file on an annual basis. These are public documents and can easily be accessed through Guidestar.com. You can sign up for a free account to have access to the searchable database of more than 1.8 million nonprofits’ tax returns. On each tax return, Part VII includes a listing of the “compensation of officers, directors, trustees, key employees, highest compensated employees, and independent contractors.”
Charities in Illinois also register with the Illinois Attorney General, which maintains a database of charities. To access the information on the Illinois Attorney General’s Building Better Charities database, individuals can search for a charity, then click to review the financial information for the charity they select. You then have access to each year’s annual report, and the salary of the three highest paid people at the nonprofit are listed on the bottom of page 1 of each report.
How can you use this information?
If you are a nonprofit professional or looking to enter the nonprofit sector, you can search for the salary information of other nonprofit directors to gain a comparative understanding of current salaries. In my career I’ve done the analysis by looking at other nonprofits in my community with comparable budget sizes. As part of a national organization, I have also examined other affiliates in communities similar to mine. By compiling this information, it is a tool I can use for discussion purposes during salary negotiations.
Nonprofit organizations are also required to disclose on the IRS990 the process for determining compensation for the principal. Board members can conduct a comparative analysis of the compensation of other nonprofit principals as a tool to ensure the salary of the CEO/executive director is at an appropriate level in comparison with other comparable positions. This analysis can then be reported on the IRS990 as a strategy to ensure an appropriate level of compensation is paid to the principal.
It is also important for board members to understand if the CEO/executive director is currently being paid at the higher or lower end of the spectrum for comparable positions. If the CEO/executive director is the highest paid person, in relation to comparable organizations, the board should be aware of this and ensure there is proper justification for the compensation. If the CEO/executive director is the lowest paid person, in relation to comparable organization, the board may want to consider if the salary is competitive enough to attract and retain quality job candidates.
Donors can also take this information under advisement when considering donations to nonprofit organizations. I encourage donors to be well informed about the organization they are contributing to, and this is one piece of that puzzle.
Too high or too low?
My rule as a nonprofit professional is that if I am comfortable with all my donors, volunteers and peers knowing my salary, then it is probably an appropriate level of compensation. I want to earn a salary that I am not ashamed of because it is too high and potentially detouring resources and attention away from the core mission. However, I also desire a salary that appropriately pays me for the value I contribute to the organization. Nonprofit directors often pour their hearts into their work, but it doesn’t mean we should expect them to live in poverty while they do it.
What are your thoughts on the salaries of nonprofit professionals?