Look Before Determining Executive Compensation

When your not-for-profit organization sets the salary for an executive director or other key individual within the organization, the board of directors wants to make sure it is paying what is necessary to attract or retain the most qualified, capable individual for the position. However, that is not the only consideration that should be addressed.

"Excess Benefits" and "Disqualified Persons"

Internal Revenue Code Section 4958 prohibits 501(c)(3) and 501(c)(4) organizations from engaging in an "excess benefit transaction" with a "disqualified person." Disqualified persons generally include anyone in a position to exercise substantial influence over the organization's affairs at any time in the five-year period before the transaction date, including officers and directors.