Setting the CEO's Compensation: 10 Steps to Doing It Right; 10 Mistakes to Avoid

Celia Roady, Partner, Morgan, Lewis & Bockius LLP

Setting CEO compensation is a basic fiduciary responsibility for nonprofit boards — and one of the most sensitive. What’s at stake is not only the working relationship between the board and the CEO, but potential IRS penalties — on the CEO and possibly on the board as well — if the process goes awry.

The IRS “intermediate sanctions” rules governing nonprofit compensation were passed by Congress more than a decade ago. While some nonprofit boards have responded by developing state-of-the-art executive compensation procedures, a surprising number have not, putting their CEOs at unnecessary risk and leaving themselves exposed as well. The new IRS Form 990 requires nonprofits to disclose their compensation practices in some detail, making it even more important for organizations to make sure their practices are up to expectations.

This workshop reviews the IRS intermediate sanctions rules, describes 10 components of a proper executive compensation process, and highlights 10 common mistakes to avoid.

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