COMPENSATION ANALYSIS | joneseconomics

Nonprofit Executive Compensation Analysis

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Overview

Establishing the compensation of a CEO is an essential responsibility for a Board of Directors of a nonprofit organization. If a CEO is underpaid relative to its peers, then the nonprofit is likely to lose a qualified leader. If a CEO’s compensation is excessive or unreasonable, then individuals may be subject to sanctions and fines from the IRS. Overpaid CEOs may also attract unwanted media attention, resulting in fewer donations to the organization. In order to ensure that a CEO’s pay is reasonable, the IRS requires that the nonprofit rely on comparable data “for similarly qualified persons in functionally comparable positions at similarly situated organizations.” The results from the compensation analysis meet this criteria.

Process

The identification of benchmark organizations relies on data from the Form 990s that are filed annually with the IRS. Benchmarks are the “closest” to the analyzed organization based on revenues, assets, number of employees, and number of years in existence. Once these similar organizations are known, CEO compensation data is manually processed to eliminate inappropriate comparisons (e.g. CEOs with less than a year of tenure, part-time CEOs, organizations with an unrelated mission, etc.). When benchmarking is performed at the national level, the benchmarks are selected from similar geographies in terms of workforce size, per capita income, and the unemployment rate. Salaries are also adjusted for regional cost of living. After restricting the data to a similar geography and industry, a regression model is used to predict the CEO’s exact compensation, controlling for the number of employees, revenue, assets, and age of the organization. The regression model also provides a confidence interval around the compensation estimate so that an organization can account for the unique qualities that each CEO possesses.

Timing

Local geography analysis: 2 weeks from contract signature
National geography analysis: 3 weeks from contract signature

A shorter deadline is available for an additional fee. Please contact m.jones@joneseconomics.com for pricing details.