Executive Compensation represents total compensation (base salary, bonus/incentive, benefits and perquisites) paid to CEOs and senior executives of nonprofit organizations as well as other companies. Generally, Executive Compensation packages are approved by a company's Board of Directors, with the specific components of that package typically directed by their Compensation Committee. Compensation Consultants are frequently utilized by organizations to help design the components of a compensation package.
For 25 years, JER HR Group has acted as an independent compensation consultant to hundreds of organizations, their boards and compensation committees. We have conducted executive compensation reviews for a variety of non-profits including: health and human services, educational institutions, foundations, trade associations, membership organizations and other organizations.
We work closely with our client’s management teams and compensation committees to provide guidance in developing a compensation philosophy and strategy. Typically, we follow a process that ensures a well-designed compensation package reflecting this strategy and adhering to regulatory requirements pertaining to:
JER HR GROUP ROLE IN EXECUTIVE COMPENSATION DESIGN
- Facilitate discussion with the Board of Directors or Compensation Committee to set a compensation strategy for key executives.
- Identify special skills, abilities and unique qualifications that may affect how an executive’s compensation is positioned in relation to the competitive market.
- Conduct analysis of the value of total compensation (base salary, incentives, standard benefits, supplemental benefits and perquisites) provided to executives to determine and ensure market competitiveness.
- Examine the types and prevalence of benefits and perquisites provided to executives to assess their competitiveness with the market and assist the Board in developing new or modified executive benefits.
Executive Compensation in nonprofits
Nonprofits face challenges in hiring and compensating their C-level executives in an increasingly competitive environment while at the same time being “reasonable and not excessive” with regard to government regulations and external scrutiny. For nonprofits, IRS Intermediate Sanctions regulations (Section 4958 of the IRC) include requirements to assist organizations in determining whether total compensation is reasonable and not excessive.
Background on Intermediate Sanctions:
“Intermediate Sanctions” regulations were adopted to deter compensation in not-for-profit organizations from becoming excessive. Under these regulations, excise taxes can be imposed on transactions that provide excess economic benefits to not-for-profit senior executives or other “disqualified persons”. Disqualified persons include executives who are in a position to “exercise substantial influence over the affairs of an organization” and relatives and family members of executives. Certain positions are defined by the guidelines as having such substantial influence including Chief Executive Officers, Chief Operating Officers and Chief Financial Officers, and other positions with comparable authority, regardless of actual title.
These regulations require the following conditions be met to establish a “rebuttable presumption” that compensation is reasonable:
- Review and approval by independent persons;
- Comparability data reported for peers and nonprofit and for-profit organizations in a comparable budget class; and
- Contemporaneous substantiation and documentation of the Board or Executive Committee’s deliberations and decisions.
JER HR Group, with more than 25 years’ experience in working with a large number and variety of types of nonprofits, is well equipped to handle these assignments. Our consultants are frequently called upon by professional groups and associations to make presentations and give seminars on a wide variety of compensation issues faced by not-for-profits. We maintain active memberships in leading associations of compensation and human resources practitioners, including: Society of Human Resources Management (SHRM), WorldatWork, Human Resources Professional Association of Nonprofit Organizations (HRPANO) and the New York Society of Association Executives (NYSAE). We are also active in the not-for-profit community, serving on Boards of Directors or as non-Board advisors to human resources committees. As a compensation consulting firm having serviced clients all over the country, we have developed our own process model that allows us to utilize our own database in addition to external published sources, providing a unique perspective.
Background on NYS Governor’s Executive Order #38:
Regulations issued by New York State affecting organizations that contract with state agencies stipulate that, for reporting periods beginning July 1, 2013 (unless a waiver is granted), a limit on executive compensation of $199,000 per annum is applied to covered executives of covered providers and related entities. If compensation is above the executive compensation limit and does not meet the safe harbor provisions of the executive order, an organization will be required to complete an application for a Waiver for Limit on Executive Compensation. This waiver will relate to the following factors stipulated in the regulations:
- The extent to which executive compensation is comparable to that given to comparable executives in other providers of the same size and within the same program service sector and the same or comparable geographic area;
- The relationship of executive compensation for each covered executive to the 75th percentile of the market;
- The nature, size, and complexity of the covered provider’s operations and the program services provided; and
- The provider’s review and approval process for executive compensation that is the subject of the waiver, including whether such process involved a review and approval by the board of directors or other governing body, whether such review was conducted by at least two independent directors or members of the governing body, whether such review included an assessment of comparability data including a compensation survey, and contemporaneous substantiation of the deliberation and decision to approve such compensation.