6.2 Short Paper_ Nonprofit Executive Compensation

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Jan 9, 2024

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6.2 Short Paper: Nonprofit Executive Compensation 1 6.2 Short Paper Nonprofit Executive Compensation Diana Nunez October 26, 2023

6.2 Short Paper: Nonprofit Executive Compensation 2 The board of directors of a nonprofit determines executive compensation, which includes wages and benefits. The board has to find a compromise between providing a competitive benefits package to draw in top personnel and making sure that the pay is fair without going overboard. Determining what is "reasonable and not excessive" is challenging since multiple non-governmental organizations may have quite different ideas about what is reasonable. This intricacy is a result of recent compensation scandals, which led the Internal Revenue Service (IRS) to place onerous restrictions on nonprofit organizations. Now, the IRS requires organizations to report executive salaries over $150,000 as well as the sums allotted for fringe benefits such as housing allowances, expense accounts, and chauffeurs. If these compensation packages are found to be excessively high, nonprofit organizations and the persons who established them may be penalized. But there's a catch: organizations can escape these fines if they can prove that their benefits package relies on a "rebuttable presumption," which releases the IRS from penalizing them (National Council of Nonprofit, 2023). Advantages Educated people who can use their experience and knowledge to help the nonprofit succeed are actively sought after by nonprofit organizations. Just like for-profit businesses, nonprofits can draw in top talent by providing a competitive salary and benefits package. Similar to working for a for-profit corporation, becoming a part of a nonprofit organization might present worthwhile chances in the business sector. The mission and objectives of the nonprofit should be directly reflected in executives compensation (Bhayani 2023). Executives are encouraged to set priorities and work toward accomplishing these goals by having their salary matched with them (Bhayani 2023).

6.2 Short Paper: Nonprofit Executive Compensation 3 Disadvantages Nonprofits may lose out on the chance to recruit highly qualified people who could strategically boost their organizations to new heights, which is an inherent disadvantage of expecting nonprofit executives to take lesser pay than their counterparts in for-profit companies. Depending on the applicant and their background, it may be difficult to convince a prospective executive to accept a pay package that is less than what they would get from a for-profit company. Working for a nonprofit organization can be tough since there are frequently greater stakes involved, and determining success can be difficult at times. In addition to being open to negotiating their salary package, executives need to be prepared to take on the extra responsibilities that come with working for charity organizations. However, it is crucial to emphasize that compensation shouldn't be the only driving force behind job seekers, especially in the charity sector.

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6.2 Short Paper: Nonprofit Executive Compensation 4 Reference Bhayani, T. (2023 September 22). Rewarding the Leaders: Nonprofit Executive Compensation Policy Sample. AirMason Blog. https://blog.airmason.com/rewarding-the-leaders-nonprofit-executive-compensation-policy- sample/#:~:text=Align%20with%20organizational%20goals%3A%20Nonprofit,and%20work %20towards%20achieving%20them. National Council of Nonprofits (2023). What Should a Non Profit Pay its Chief Executive? . Council Of Nonprofits. https://www.councilofnonprofits.org/running-nonprofit/governance-leadership/executive- compensation

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