Spotlight on Executive Compensation

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Regulators continue to challenge executive compensation paid by nonprofit organizations. Indeed, even the commercial sector saw an outcry against executive compensation levels in the context of the recent bank bailout program, resulting in some limitations. State regulators are questioning the amount of compensation paid to nonprofit executives and the governing boards’ methods of setting the compensation. Recent examples in Maryland, Massachusetts, and New Jersey illustrate their displeasure and willingness to charge nonprofit organizations with a failure to properly justify compensation levels and poor governance practices. On occasion, the regulators discount reliance on comparability data - a key component in the IRS “rebuttable presumption” procedures for determining reasonable compensation. Through the questions addressing executive compensation on the revised Form 990 and recent compliance initiatives in the healthcare and education sectors, the IRS has also signaled its concerns about executive compensation.

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