Set executive pay through an independent body, comparability data, and contemporaneous documentation. Generate a branded PDF or Word document in minutes — free, no sign-up.
Create your policy →Set executive pay the right way — with the independent, documented process the IRS recognizes.
governance policies the IRS Form 990 asks about by name
Source: IRS Form 990, Part VI
of annual revenue a typical organization loses to fraud
Source: ACFE Report to the Nations
U.S. nonprofits the IRS expects to follow sound governance practices
Source: IRS
It is a three-step process recognized under federal tax law: approval by an independent body free of conflicts, reliance on appropriate comparability data, and contemporaneous documentation of the decision. Following all three creates a presumption that the compensation is reasonable.
The board or a designated compensation committee made up entirely of people with no conflict of interest. The executive whose pay is being set — and anyone related to or supervised by them — cannot take part in the discussion or vote.
Federal excise taxes that can apply when a disqualified person receives compensation or benefits exceeding fair market value (an excess-benefit transaction), and to managers who knowingly approve it. Following this policy’s process is designed to help avoid that risk.