“A ‘Compensation Board’ is a governmental board responsible for administering and overseeing compensation programs, ensuring workers receive benefits like medical care and wage related to their work duties.”
While the term “compensation board” might be used colloquially, the more standard and accurate term within nonprofit governance is Compensation Committee.
Here’s a definition and explanation:
A Nonprofit Compensation Committee is typically a committee of the organization’s Board of Directors responsible for reviewing and determining the compensation (salary, benefits, bonuses, etc.) for the chief executive officer (CEO) or Executive Director, and sometimes other highly compensated executives or key employees.
Key Aspects and Responsibilities:
- Purpose: The primary goal is to ensure that executive compensation is “reasonable,” fair, and justifiable, aligning with the organization’s mission, resources, performance, and regulatory requirements.
- Independence: Committee members should ideally be independent directors (not employees or individuals with significant financial ties to the organization, apart from their board role) to avoid conflicts of interest.
- Setting Executive Compensation: This is the core function – determining the salary, bonuses, benefits, and any other forms of remuneration for the top executive(s).
- Benchmarking: The committee typically relies on comparable data from peer organizations (similar size, mission, geographic location) to determine appropriate compensation levels. This often involves using salary surveys or hiring compensation consultants.
- Developing Compensation Philosophy: The committee may help establish the organization’s overall approach and strategy regarding staff compensation and benefits.
- IRS Compliance (Rebuttable Presumption of Reasonableness): A crucial function is helping the nonprofit comply with IRS regulations against “private inurement” (improperly benefiting private individuals) and “excess benefit transactions.” By following specific procedures (using comparable data, documenting the decision process, having independent board members approve it), the nonprofit can establish a “rebuttable presumption” that the compensation is reasonable, shifting the burden of proof to the IRS if challenged.
- Performance Link: The committee often links executive compensation decisions to the performance of the executive and the organization against predefined goals.
Oversight: While primarily focused on executives, the committee might also provide oversight for the overall compensation structure and benefits programs