What Boards and Executives Need to Know About Reasonable Compensation

This resource outlines recommended and required elements of this process, the details of a compensation package, special considerations in considering raises and bonuses, and much more.

Board members and staff of philanthropic institutions inquire about determining reasonable compensation. The determination of compensation can be closely connected to organization values, including a commitment to fair and equitable pay. The issue of compensation also faces significant oversight by the IRS, in addition to potential scrutiny by news media and members of the public.

Determining reasonable compensation is an essential activity within staffed foundations. In fact, one of the required roles of a foundation’s board is to evaluate the executive director’s professional performance and approve their compensation. As such, the IRS has recommended procedures when a philanthropic institution is determining the compensation of officers, directors, trustees and other highest-compensated employees, as well as highest-compensated independent contractors.

The “What Boards and Executives Need to Know” series of resources of Council of Michigan Foundations (CMF) designed to address questions of interest to board members and senior leaders of grantmaking organizations. These resources may be particularly useful for orientations, board trainings and general professional development and provide better understanding of key concepts that are necessary for the success of the governance and management of foundations in the field.