Nonprofits must walk a fine line between keeping their operating expenses low andcompeting for qualified employees. When managing a nonprofit is an individual’s primary source of employment it is reasonable for the CEO to draw a salary. Nonprofits must balance the need to retain and promote the most talented managers while still maintaining their nonprofit status. However, when it comes to attracting talented leaders, offering competitive salaries can be a challenge for nonprofits. This is why GrantWatch has put together this article to help you understand how nonprofits can pay their CEOs while still qualifying as a 501(c)(3) nonprofit.
What Does a CEO Do?
Being the CEO of a nonprofit can be a very difficult position to navigate. This individual is responsible for the direction and future strategy of the organization. The CEO of a nonprofit assembles teams, outlines donor stewardship plans, and manages services and fundraising for the organization. Most CEOs should be familiar with every event that happens, even at the lower levels of the organization. They have to understand how these processes impact retention, community outreach, marketing, and budgeting for the organization. In addition, they must report the impact and performance of the organization to the board of directors as well as the general public. As you can see, being a nonprofit CEO is a time-consuming and labor-intensive position and is worthy of fair compensation.
How to Meet Nonprofit Salary Compliance?
There is no concrete rule for how the CEO of a nonprofit is paid, which can lead to confusion about salary requirements. The CEO or founder of a nonprofit often puts in long work hours. Yet, they typically make far less money than executives at for-profits. Although the truth is, nonprofit CEOs can pay themselves a fair salary for the work they do running the organization. While there is no clear answer as to how much you can pay your CEO, it’s generally a good idea to have your board of directors conduct an annual review. This is a good way to see if the salary you created is equivalent to other nonprofits that are similar in size and located in the same area. Keep in mind, that the IRS can and does penalize organizations that overpay the CEO or founder of a nonprofit.
What Is a Reasonable Compensation Package?
A nonprofit must be careful when determining competitive compensation packages to attract CEOs. The primary nonprofit compensation guideline is as follows: Wages paid must meet all local, state, and federal guidelines. In short, the package should be reasonable, fair, and not excessive. The compensation voted upon must include all benefits you want to offer. This might include an annual salary, medical benefits, paid time off, a pre-approved bonus structure, and more. The board voting on compensation packages annually ensures that vital funds are dedicated to the nonprofit’s overall mission. Compensating individuals to make a difference toward their mission is the key goal.
The Lastest Nonprofit Grants
- Firstly, grants are available to nonprofits, government agencies, IHEs, and tribes for joint research projects on humanities-related topics.
- Grants are also open to government agencies, nonprofits, NGOs, tribes, and IHEs to address nutrition and food access for low-income individuals.
- In addition, cooperative agreements are available for nonprofits, government agencies, tribes, and school districts for programs to reduce air pollution.
- Individuals and non-federal agencies can also for grants to promote the adoption and development of innovative approaches to conservation in agriculture.
- Lastly, funding is available to nonprofit organizations, government agencies, and tribes for programs and projects to reduce risks associated with natural disasters.
GrantNews Notes
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Related
FAQs
What should a nonprofit pay its chief executive? The board of directors is responsible for hiring and establishing compensation (salary and benefits) for the executive director/CEO that is “reasonable and not excessive,” but is also enough to attract and retain the best possible talent to lead the organization.
What is the pay ratio for a nonprofit CEO? ›
The median ratio was 2.7:1, meaning the CEO was paid 2.7 times as much as the median employee at the same grantmaking organization. The reported ratios are as low as 0.2:1 (where the median employee makes more than the CEO) and climb to 9.5:1 (where the CEO makes almost 10 times as much in salary alone).
Is there a limit to how much a non-profit CEO can make? ›
There's a vaguely defined legal limit to how much nonprofit executives, particularly presidents and CEOs, can make, though the limit isn't exactly quantifiable. Instead, the IRS has a three-step process for making sure nonprofit boards set “reasonable” compensation for executives.
Can the president of a non-profit get paid? ›
Does the president of a nonprofit get paid? Although some nonprofit organizations may be led by volunteers—such as Bostic, who does not receive a salary for being a foundation president and CEO—many nonprofit presidents are compensated for their work as it is their full-time job.
How is CEO compensation determined? ›
Base salaries for CEOs vary substantially, depending on the type of industry, the CEO's years of experience and other factors. Typically, boards of directors will form an executive compensation committee that sets a base annual salary, paid monthly or biweekly.
What is the bonus structure for a non-profit CEO? ›
For example, a CEO's bonus target may be 20% of base salary, with a threshold of 10% and a maximum of 30%. The minimum is typically 0%, because most organizations do not guarantee a bonus. Defined incentives are crucial because they align expectations for the incentive recipients and those determining the award.
What is a fair CEO pay ratio? ›
Where the estimated pay ratio across all respondents was reported to be 10-to1, the same group of people reported an ideal pay ratio of 4.6-to-1. And there you have it. The ideal CEO-to-employee pay ratio is not even 5-to-1. That is nearly 50 times lower than the actual practiced pay ratio of 202-to-1.
What is the CEO pay ratio rule? ›
The pay ratio disclosure rule is contained in new paragraph (u) of Item 402 of Regulation S-K. It requires public companies to disclose: The median of the annual total compensation of all employees other than the chief executive officer. The annual total pay of the chief executive of- ficer.
What is the highest paid non-profit CEO? ›
U.S. nonprofits with highest paid CEOs 2022, by compensation
In 2022, the nonprofit organization in the U.S. with the highest paid CEO was Sentara Health, with an estimated salary of 33.22 million U.S. dollars.
Can a CEO be paid $1? ›
Instances of alternative compensation
For example, in 2010–11 Oracle's founder and CEO Larry Ellison made only $1 in salary, but earned over $77 million in other forms of compensation. In some cases, in lieu of a salary, the executives receive stock options.
The founder is hired by the nonprofit as the executive director (or in a similar leadership role). This way, the founder is paid, but they do give up all their authority to the board of directors, which governs the nonprofit and has hiring/firing authority of the founder's position.
Can I pay myself from a nonprofit? ›
It is legal for nonprofit founders and officers to receive a salary for their work for the nonprofit. Let's talk about how much you can pay yourself.
How do CEOs of nonprofits get paid? ›
The bottom line is that non-profit founders and employees are paid from the gross revenues of the organization. These salaries are considered part of the operating costs of the organization.
Can the founder of a nonprofit receive a salary? ›
But this isn't the case--nonprofits should make money and employees can be paid a salary. This includes the founder if the founder is performing mission-related work as an employee of the organization.
Is the founder of a non profit the CEO? ›
' Every founder has a choice to be part of the staff or part of the board. If you are most interested in being part of the daily activities in the organization, you may determine to be the first chief executive responsible for the operations, management, and administration.
What nonprofit has the highest salary CEO? ›
In 2022, the nonprofit organization in the U.S. with the highest paid CEO was Sentara Health, with an estimated salary of 33.22 million U.S. dollars. That year, seven of the top ten nonprofits with the highest paid CEOs belonged to the healthcare industry.
How much is too much when it comes to nonprofit executive compensation? ›
Even $125,000 or $150,000 is higher compensation than the majority of nonprofits should be paying their executive directors today — most charities are very small.
