Are You Paying Too Much?
Non-profit boards face a vexing challenge. They want to hire the top talent and want to offer a compensation package that will attract that talent. However, if the IRS determines executive pay to be sufficiently above the prevailing market rate for that position, they apply a harsh penalty. How harsh? The initial penalty is twenty five percent of the amount deemed excessive and a startling 200 percent of the excessive amount if the total is not returned. Because the IRS bases its calculation on total compensation and because it has access to more data than most non-profits, it can be difficult for many non-profits to know if they are paying an excessive amount.
The Right Data Keeps Your Non-Profit Safe
The IRS allows outside compensation experts to provide safe harbor by using market data to demonstrate that executive pay paid by a non-profit is comparable to pay in similar organizations in similar markets. Data providers should have data across as many markets as possible and as refined as possible, or it won't help the non-profit make the case to the IRS. As an example, getting the average pay for all executives in a metro area won't help as it would include data from non-comparable industries.
Assured protection requires data like that which PayScale Insight provides. With over 35 million salary profiles spread across 5,000 positions from around the country, non-profits using PayScale Insight can drill far down into metros, industries and job types. PayScale Insight also provides built-in analytical tools to help non-profits make the right comparisons. With the depth of data provided and the expertise available to support it, non-profits can create a defensible compensation plan to back up the compensation decisions they make.
Act Before the IRS Calls You
Securing expert compensation data regarding your executives is often enough to protect them and your organization. In fact, if you work with PayScale and document the data utilized to make your compensation decisions, the burden of proof of excessive pay shifts from the non-profit to the IRS. You'll still need advice from tax and legal professionals, but you can't find safe harbor without the right data.
More From PayScale:
CFO Corner: Retaining Top Performers
2012 Trends in Pay - U.S. Salary Growth
Bringing Finance and HR Together