Yes, you are probably not paying your CEO enough. How can that be? Well, if Jerry I-Wouldn't-Be-Making-This-Selling-Dockers can be paid in excess of $750,000 annually for this mess, then, my G-d, my CEO who is actually doing something/anything should be making more...much more. Here's how it's supposed to be done.
The Council of Non-Profits lays it out:
Do not worry if you don't have a "compensation consultant" reference handy, your CEO or CEO candidate can surely provide one. Be assured that that consultant will provide you with the comparative data that will disclose, e.g., what CEO Jerry or Steve or Steve or John (or his successor) makes. But probably not what some lower-compensated but equally or more successful CEO made. Yes, you may have accomplished absolutely nothing before you took the job but somehow you can compare yourself to those whose accomplishments are undeniable. And, mirabile dictu, you get away with it.
Why Have a Written Policy to Review the Compensation of Nonprofit Executives?One answer is because charitable nonprofits always should be able to justify that the compensation received by the executive director/CEO and other staff is reasonable, and not excessive. The practice of having a written policy and following it to review compensation levels helps ensure that the nonprofit is meeting not only the expectations of the IRS, but also the expectations of donors and the public, who expect that their donations are being put to prudent use by the charitable organization. A related goal of a compensation policy is to ensure that your nonprofit is paying ENOUGH to attract and retain the most highly qualified and talented employees.Legal Background: The IRS Form 990 asks charitable nonprofits about the process used to approve the compensation of the executive director/CEO (and certain other key employees): "Did the process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?" (Form 990, Section VI, Part B, line 15) Nonprofits filing the Form 990 must describe the process on Schedule O.Ensuring that the board has approved "reasonable and not excessive" compensation for the executive director/CEO is one of the fiduciary responsibilities of every nonprofit board. Boards that engage in an annual process of reviewing and approving the compensation of the executive director/CEO (and certain highly paid "key" employees as defined by the IRS) and that document this process in the minutes of board meeting(s), will be protecting their nonprofit (and themselves). An annual review also ensures that the nonprofit is acting in a transparent manner because through the process the full board will be aware how much the executive director/CEO is being paid by the nonprofit.- See more at: http://www.councilofnonprofits.org/nonprofit-executive-compensation-policy#sthash.Szjx9CBo.dpuf
We speak of wanting our organizations to "run like a business;" yet, when it comes to compensating, e.g., the CEO of JFNA, we operate our non-profit like a gift shop, bestowing reward after reward without regard to performance. In fact, compensation appears to be rewarded in the absolute reverse -- fail and we will pay you more because G-d forbid we might otherwise lose you!! Why do business leaders behave in this way? There ain't no explaining it; perhaps, it's because it isn't their money. Perhaps it's because they have forgotten it's their fiduciary duty to protect those assets. Many of us heard the incredible recitation of JFNA's so-called "achievements" when Chair Siegal described them at the last JFNA Board meeting; I was not present, someone tell me if his nose grew longer with each or if he maintained a straight face.
Oh, and after you make the compensation decision, you will hide it in the 990 which becomes public two years after the fact -- this appears in most instances to be "..the process (pursuant to which) the full board will be aware how much the executive director/CEO is being paid..." That's what passes for compensation "transparency."
And, why is that? Because of shyness? No, me thinks it is mutual embarrassment with how our donors' dollars are being spewed (some would say "wasted"). I and you are all for our professional leaders being well compensated for their achievements; I and you are dead set against CEOs who have not earned it being compensated at levels that are beyond comprehension. Unfortunately, too many lay leaders appear not to be able to tell the difference.