PHI-384 Written Assignment #2/Myrna Ojeda
Application Project
Currently in the United States there are roughly 1.5 million non-profit organizations that are registered ("Number of nonprofits,"). Nonprofit organizations should be spending most of their budget on their mission versus paying executives. The executives working for a non-profit should not be expecting to be paid these exuberant amounts in compensation, they should be working for their charity because they believe in their mission and want to see that mission be successful. Non-profit organizations do not get taxed and because of this they should be regulated to prevent overpaying any of their executives. When it comes to defining how much is too much for executives of non-profit organizations there are plenty of factors to take in consideration. Some of the factors include a job description, required level of education, compensation averages in the area, number of hours worked and overall budget of the charity (McRay, 2009). Nonprofit organizations should be competitive, but no to the point where it is extravagant. I believe that there should be a maximum amount set for executive salaries. This cap should be competitive with for profit company executives and keep an executive happy to work for their non-profit organization. One example of some effort in my area is the New York Governor Andrew Cuomo, who tried to put a salary cap on the heads of state non-profit organizations; he instituted a cap of $199,000 for the executives that are providing a public service with taxpayer money. State Supreme Court Judge Thomas Feinman later overturned this regulation. Governor Cuomo responded that it defies common sense, transparency and public accountability (Karlin, 2014).
All pay to executives should be comparable to their for profit counter parts which could be established by conducting salary surveys to assess current salary levels, by geographic area. Regulations should be put in place to manage the pay scales of nonprofit organizations. First, there should be a compensation committee, whose role is to operate within the detailed bylaw provisions, resolutions or written charter adopted by the full board of directors. The committee would select, hire and work with advisors directly aside from the management. Second, employ the rebuttable presumption safe harbor procedures. A tax exempt organization making a decision regarding compensation of a disqualified person must adequately document the basis for its determination. Third, adopt a comprehensive conflict of interest policy. A conflict of interest policy is an IRS requirement for public charities. If there is a conflict of interest the rebuttable presumption safe harbor procedures requires tax exempt organization take steps to address the conflict and record those steps in its meetings minutes. Fourth, adopt a compensation policy, to increase consistency in setting compensation. Fifth, use appropriate comparability data. Compensation must be commensurate with the duties and responsibilities of the person being compensated. Sixth, assess all components of executive compensation relative to comparable organizations. It is important to ensure that total compensation is reasonable rather than comparing salary and various perquisites in isolation. Finally, have CEO’s and Director’s compensation approved by a full board. This is a requirement under some states non-profit laws (Carter, 2011). No matter the type of non-profit organization, it can benefit from learning how to operate more like a for profit business. To learn and apply local business practices to become efficient and maximize their time and resources. By learning such techniques the non-profit organization can do more with less and increase their effort. The greatest danger this approach brings is its possible conflict of interest. Non-profit organizations are supposed to be operating under the assumption of not trying to make
