GuideStar Webinar (09/19/11) - Best Practices in Compensation

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GuideStar Webinar (09/19/11) - Best Practices in Compensation

  1. 1. How the GuideStar Compensation ReportCan Help You To Determine Appropriate Executive Compensation Chuck McLean GuideStar Vice President of Research #npocomp
  2. 2. GuideStar Nonprofit Compensation Report• Uses IRS Form 990 compensation data exclusively.• Reports on both total compensation and annual percentage increases for incumbents.• 2011 report includes 131,473 positions drawn from 87,597 Form 990 filings of 501(c) organizations for fiscal year 2009 (other than private foundations). #npocomp
  3. 3. Positions Reported On• CEO/Executive Director (82,845)• Top Administrative Position (8,175)• Top Business Position (2,090)• Top Development Position (3,013)• Top Education/Training Position (1,269)• Top Facilities Position (431)• Top Financial Position (19,426)• Top Human Resources Position (1,734)• Top Legal Position (1,191)• Top Marketing Position (1,039)• Top Operations Position (6,415)• Top Program Position (2,272)• Top Public Relations/Communications Position (715)• Top Technology Position (1,558) #npocomp
  4. 4. Breakdown of Data• Geography (National, State and MSA)• Annual Expenses• Gender• Organization Type (NTEE Codes) #npocomp
  5. 5. Statistics Reported• Number of organizations in the category• The average compensation for the position across the category• The 10th, 25th, 50th (median), 75th, and 90th percentiles of compensation for the position across the category #npocomp
  6. 6. Understanding the Statistics• 10th percentile – 10 percent of the people reported upon in the category made less than this amount, and 90 percent made more.• 25th percentile - 25 percent of the people reported upon in the category made less than this amount, and 75 percent made more.• 50th percentile (median) - half of the people reported upon in the category made less than this amount, and half made more.• 75th percentile - 75 percent of the people reported upon in the category made less than this amount, and 25 percent made more.• 90th percentile - 90 percent of the people reported upon in the category made less than this amount, and 10 percent made more. #npocomp
  7. 7. Understanding the Statistics• The larger the number of organizations in the category, the more reliable the data. The average compensation is especially susceptible to being skewed when there are few organizations in the category.• The closer together the average compensation and the median compensation, the more reliable the data. #npocomp
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  13. 13. In cases where a executive compensationpackage is complicated and anticipatedtotal compensation is well above thenorm, The GuideStar NonprofitCompensation Report probably does notprovide sufficient information to satisfythe requirements of a rebuttablepresumption. However, in most routinecases, the report provides an adequate“reality check” for setting executivecompensation. #npocomp
  14. 14. For example, suppose that your organization:• Provides various human services• Has an annual budget of $5.3 million• Is located in Detroit, Michigan• Is seeking an experienced executive director Looking in the GuideStar report, you find 52 similar organizations in Detroit, where executive director pay was $125,536 at the 25th percentile, $151,571 at the median, and $209,155 at the 75th percentile. It seems reasonable, then, that target compensation would be somewhere between the median and the 75th percentile. If compensation is to be set significantly higher than that, however, a more rigorous process is likely required. #npocomp
  15. 15. Rules to Live By• The best source of compensation data that the IRS has is Form 990 data.• The more the compensation of executives strays above Form 990 norms, the more likely the IRS is to question it, thus• The more rigorous the organization needs to be in following proper procedures and documenting the reasons for what might appear to excessively high compensation. #npocomp
  16. 16. Q&A• What kind of compensation practices can a for-profit engage in that a nonprofit can’t? #npocomp
  17. 17. Q&A• How has the economic downturn affected compensation practices at nonprofits? #npocomp
  18. 18. Q&A• We are in a rural area and there are not other nonprofits like us nearby. How can we choose comparable organizations for the purposes of benchmarking compensation? #npocomp
  19. 19. Q&A• Is it OK to pay bonuses, and what kinds of limitations are there? #npocomp
  20. 20. Q&A• How should compensation of board members be determined? #npocomp
  21. 21. Q&A• What are the advantages and disadvantages of using Form 990 data for comparable compensation information? #npocomp
  22. 22. To download Karl Emerson’s White Paper: http://bit.ly/neu91Y #npocomp
  23. 23. If you have questions• Karl Emerson, Montgomery McCracken KEmerson@mmwr.com• Chuck McLean, GuideStar cmclean@guidestar.org #npocomp

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