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How the GuideStar Compensation Report Can Help You To Determine Appropriate

Executive Compensation

Chuck McLeanGuideStar Vice President of Research

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GuideStar Nonprofit Compensation Report

• Uses IRS Form 990 compensation data exclusively.

• Reports on both total compensation and annual percentage increases for incumbents.

• 2011 report includes 131,473 positions drawn from 87,597 Form 990 filings of 501(c) organizations for fiscal year 2009 (other than private foundations).

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Positions Reported On• CEO/Executive Director (82,845)• Top Administrative Position (8,175)• Top Business Position (2,090)• Top Development Position (3,013)• Top Education/Training Position (1,269)• Top Facilities Position (431)• Top Financial Position (19,426)• Top Human Resources Position (1,734)• Top Legal Position (1,191)• Top Marketing Position (1,039)• Top Operations Position (6,415)• Top Program Position (2,272)• Top Public Relations/Communications Position (715)• Top Technology Position (1,558)

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Breakdown of Data

• Geography (National, State and MSA)• Annual Expenses• Gender• Organization Type (NTEE Codes)

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Statistics Reported

• Number of organizations in the category• The average compensation for the

position across the category• The 10th, 25th, 50th (median), 75th, and

90th percentiles of compensation for the position across the category

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Understanding the Statistics• 10th percentile – 10 percent of the people reported

upon in the category made less than this amount, and 90 percent made more.

• 25th percentile - 25 percent of the people reported upon in the category made less than this amount, and 75 percent made more.

• 50th percentile (median) - half of the people reported upon in the category made less than this amount, and half made more.

• 75th percentile - 75 percent of the people reported upon in the category made less than this amount, and 25 percent made more.

• 90th percentile - 90 percent of the people reported upon in the category made less than this amount, and 10 percent made more.

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Understanding the Statistics

• The larger the number of organizations in the category, the more reliable the data. The average compensation is especially susceptible to being skewed when there are few organizations in the category.

• The closer together the averagecompensation and the mediancompensation, the more reliable the data.

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In cases where a executive compensation package is complicated and anticipated total compensation is well above the norm, The GuideStar Nonprofit Compensation Report probably does not provide sufficient information to satisfy the requirements of a rebuttable presumption. However, in most routine cases, the report provides an adequate “reality check” for setting executive compensation.

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For example, suppose that your organization:• Provides various human services• Has an annual budget of $5.3 million• Is located in Detroit, Michigan• Is seeking an experienced executive director

Looking in the GuideStar report, you find 52 similar organizations in Detroit, where executive director pay was $125,536 at the 25th percentile, $151,571 at the median, and $209,155 at the 75th percentile. It seems reasonable, then, that target compensation would be somewhere between the median and the 75th

percentile. If compensation is to be set significantly higher than that, however, a more rigorous process is likely required.

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Rules to Live By

• The best source of compensation data that the IRS has is Form 990 data.

• The more the compensation of executives strays above Form 990 norms, the more likely the IRS is to question it, thus

• The more rigorous the organization needs to be in following proper procedures and documenting the reasons for what might appear to excessively high compensation.

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Q & A

• What kind of compensation practices can a for-profit engage in that a nonprofit can’t?

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Q & A

• How has the economic downturn affected compensation practices at nonprofits?

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Q & A

• We are in a rural area and there are not other nonprofits like us nearby. How can we choose comparable organizations for the purposes of benchmarking compensation?

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Q & A

• Is it OK to pay bonuses, and what kinds of limitations are there?

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Q & A

• How should compensation of board members be determined?

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Q & A

• What are the advantages and disadvantages of using Form 990 data for comparable compensation information?

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To download Karl Emerson’s White Paper:

http://bit.ly/neu91Y

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If you have questions

• Karl Emerson, Montgomery McCrackenKEmerson@mmwr.com

• Chuck McLean, GuideStarcmclean@guidestar.org