A Chronicle of Philanthropy survey has found that nearly 3 in 10 of the leaders of the nation’s largest charities and foundations have taken pay cuts in the past year due to the recession. The Chronicle studied compensation at 325 large nonprofit organizations. In 2008 nonprofit executives saw a sharp increase in pay as opposed to a sharp drop in pay for for-profit executives. A lot of organizations are not cutting or freezing executive pay for fear that the executive will leave or not considering how the downturn in the economy will impact them. If an organization is struggling in the economic downturn and the executive is receiving pay raises, it could send a mixed message to donors.

The above is a summary of an article titled “Nearly 30% of Nonprofit Leaders Took a Pay Cut This Year; Pay in 2008 Grew Quickly” from The Chronicle of Philanthropy authored by Noelle Barton and Ben Gose, which can be found at the following website: http://philanthropy.com/free/articles/v21/i22/22000107.htm.

The American Society of Association Executives (ASAE) published the following information in a recent alert to members. This should be of high interest to all tax-exempt organizations.

Sen. Chuck Grassley (R-IA), ranking member of the Senate Finance Committee, has filed two amendments to the health care reform bill introduced by Senate Finance Chairman Max Baucus (D-MT) that directly impact tax-exempt organizations. These amendments were filed along with more than 500 others before the end of last week, and are being considered in the markup of the Baucus bill that got underway Sept. 22.

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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.