Advice for Non-Profits Regarding Interested-Party Compensation

What is the best way to ethically handle a board discussion on compensation for our non-profit’s executive staff?

When it comes to a boardroom discussion, few topics are more uncomfortable than those involving compensation packages to executives, directors, and staff members. For one, non-profits often strive to be as fiscally careful as possible, and will work tirelessly to ensure each donated dollar is spent wisely and in line with the group’s designated purpose. Secondly, there is an inherent conflict of interest when a board member discusses and/or votes on his or her own compensation package – a concept known as “interested-party compensation.”

If your board is facing this issue, or you believe it may be an issue in the not-too-distant future, be sure to contact attorney Claudia Pollak for sound advice on state and federal non-profit laws – and save yourself from having to undo the deal in the future.

What to know about interested-party compensation

In essence, a board member discussing and voting upon his or her own compensation package is an example of a self-interested transaction, even if it was meant as an innocent discussion amongst the leadership of the organization. Accordingly, there are several best-practices guidelines to follow when setting compensation packages for board members and officers, including:

• Setting compensation amounts with the help of outside, completely uninterested advisors or consultants;
• Setting up an internal committee to discuss compensation matters;
• Clearly delineating in bylaws and employment agreements that compensation is not meant to imply profit;
• Engaging in research of comparable salaries offered to those in similar positions at similar nonprofit organizations; and
• Requiring the member at issue to abstain from discussing and voting on the compensation package. 

There are also a number of state and federal taxation and ethical considerations to include in the decision as to whether nonprofit board member compensation is appropriate and, if so, in what amount.

If you would like to discuss compensation issues regarding your nonprofit organization, please contact Westchester New York business law attorney Claudia Pollak by dialing (914)908-6220 today.