Nonprofit Compensation and Governance in Spotlight

Since the earliest days of the nonprofit sector’s development, organizations have faced scrutiny. However, in recent years, several factors have caused the spotlight on nonprofits and their boards to shine more brightly. High-profile scandals and questionable business practices have prompted potential donors—both individuals and foundations—to routinely seek out information from industry watchdogs such as GuideStar, Charity Navigator and the Better Business Bureau before they write a check. The Internal Revenue Service is also looking more closely at nonprofits. In addition, the increased demands for services that nonprofits provide, and the consequent growth in the size of many providers, have raised the stakes on strategic decisions boards must make.

It’s no wonder, then, that demands on directors of large nonprofits and foundations also are increasing. Board members are criticized and sometimes held accountable if something goes wrong. For example, when the president and CEO of the Boys & Girls Club of America came under fire from certain U.S. senators last year for accepting a total compensation package of almost $1 million, critics were asking, “How was this decision reached? Where was the board?” Whether the criticism was justified or not, board members felt the heat. As a result, more boards than ever are doing self-assessments or hiring outside experts to review their policies and procedures.

Pressure on large nonprofits to rein in executive compensationhas prompted some organizations to form compensation committees to review and approve salaries and benefits for the organization’s CEO and other key employees. When faced with questions regarding compensation, boards that have taken these steps can be more confident that executives are being paid appropriately compared to similarly sized nonprofits.