Tax-exempt executives continue to receive scrutiny over compensation. In a recent WSJ.com article, a university president received a “no confidence vote” from its faculty due, in part, to the large increase in salaries and related perks over the last 8 years. Salaries and related perks increased 71%, from 2002 to 2008. With the negative public reaction to the AIG bonuses, more and more tax-exempt organizations are being scrutinized by stakeholders and the general public.

The IRS enforces this scrutiny by requiring non-profits to annually disclose the compensation of officers, directors, trustees, key employees and 5 highest compensated employees (those receiving > $100,000). In Part VII (page 7) of the Form 990, organizations are required to list the individual’s name/title, average hours worked per week, position, compensation(W-2/1099-Misc) from the organization, reportable compensation from related organizations and other estimated amounts of compensation (deferred and certain nontaxable benefits).

What defines a key employee? This individual is not an officer (O), director (D) or trustee (T), who meets the following 3 criteria:
1. Receives $150,000 or more of compensation from the organization and related organizations.
2. Has responsibilities, powers or influence over the organization (similar to O,D,T), or manages a discrete segment that represents 10% or more of operations;
3. Included in the top 20 of highest paid employees.

Remember Form 990 is a public document and “the public” will be able to review the organization’s compensation policies, practices and disclosure of selected positions.

What types of benefits are on the IRS’ radar? See my next post.

Earlier this month the WSJ.com disclosed an article written by Deborah Solomon and Laura Meckler relating to President Obama’s plan to restrict executive salaries. Organizations that receive a substantial amount of government aid may be restricted on the amount of executive compensation.

The possible restrictions include a $500,000 cap on executive salaries. Additional compensation could be provided in the form of restricted stock or funds that are tied to the long-term health of the organization. President Obama’s tentative plan also restricts executives from receiving severance payments; and allowing shareholders “more say” in how top executives are compensated. This restriction will not apply to any of the existing financial-rescue bailout programs.

Should organizations that receive federal funds be restricted on how much executives are compensated? Read the rest of this entry »