Hiring & Evaluating an Executive Director

By statute, the board is responsible for appointing an executive director.  The board is also responsible for supervising the executive director as well as periodically evaluating the executive director’s performance and setting the executive director’s compensation. 

At some point, each NPC must go through the process of hiring a new executive director.  The hiring process should begin with creating an executive director job description.  

• Sample Executive Director Job Descriptions
   

The next step is to recruit a new executive and the board of directors should decide whether to recruit candidates locally or recruit nationally.  Example of places to post an Executive Director position announcement include:

• Local newspapers
• Local universities and colleges
• LinkedIn
• NAVREF website jobs posting page
• Other online job posting sites

Executive Employee Contract

While a nonprofit may wish to preserve "at will" status for most of its employees, employment contracts with NPC executive directors or chief employed officers are essential to a businesses continuity plan.  They provide security to the NPC as well as the executive.  An employment contract should provide a balance of obligations (i.e, length, duties, etc.), reporting chain (i.e., board of directors) and benefits for the executive.  A link to a sample contract is provided below.  However, each state may have varying requirements and contracts should be reviewed by a local attorney.

• Sample Employment Contract for Executive Director - Note:  This contract may not be appropriate for VA employees serving as executive directors who may seek NPC employment after ending their VA employment (by resignation or retirement).

Executive Compensation Rules

In 2005 the IRS issued the final regulations on Intermediate Sanctions.  These allow the IRS to levy excise taxes on nonprofit organizations and their managers for transactions that are found to provide an “excess benefit” for insiders, generally members of the board and key influential employees (chief executive officers, chief operating officers, chief financial officer or even PIs who exert influence over spending decisions).

To protect the organization and managers, nonprofits should carefully document all transactions involving insiders, ensuring that no one involved in the approval process has a conflict of interest or receives a benefit greater than the value of the service provided or the item purchased.

Executive compensation must be justified by appropriate comparability data, including compensation paid by similar nonprofit and for profit organizations in the same geographical area. In board meeting minutes, document 1) the data used as the basis for determining compensation; 2) who was involved in the decision; and 3) verify that no one involved had a conflict of interest.

While the IRS does not provide a threshold, it is commonly understood compensation (salary, fees, bonuses, liability insurance premiums, all other compensatory benefits, taxable and nontaxable fringe benefits, etc.) paid to highly compensated (defined as $110,000 for 2009) insiders may be subject to scrutiny.

Linked below is a PDF of an IRS document that discusses executive compensation and provides a simple checklist for boards to use to ensure compliance with the regulations.

Helpful IRS links:

• www.irs.gov
• http://www.irs.gov/charities/charitable/article/0,,id=123298,00.html - information from IRS on Intermediate Sanctions, automatic excess benefit, executive compensation and rebuttable presumption
• www.irs.gov/pub/irs-utl/m4958a2.pdf includes an IRS rebuttable presumption procedure and form for establishing executive compensation. 

Executive Director Performance Evaluation Kit

There are many ways to obtain comparable compensation data.  For NPC executive directors, NAVREF complies executive director compensation data from NPCs' annual IRS Form 990s. Additionally, NAVREF has created a performance evaluation kit to help executive directors with their annual performance evaluations. You will find the contents of that kit below:

• Executive Director Performance Evaluation Booklet by the Enterprise Foundation
• The Executive Director Performance Evaluation Form (Word Format)
• NAVREF current executive director compensation compilation
• 2023 Guidestar Compensation Report
   

Also, it may be possible to identify a VA or university position with a comparable level of responsibility and to use the appropriate geographically adjusted pay grade as the basis for NPC pay.

An entire industry of nonprofit compensation consultants now exists to help nonprofits meet the IRS requirements.  For NPCs not wishing to incur this expense, check with the local labor board, the state association of nonprofits (to identify yours, go to National Council of Nonprofit Associations - http://www.ncna.org/) or the Chamber of Commerce. Many of these collect and make available compensation information.

Additionally, there are a number of web sites offering salary data:

• Guidestar:  www.guidestar.org Compiles compensation from IRS Form 990s
• Salary.com:  www.salary.com Leading provider of on-demand human resources software that help businesses and individuals manage pay and performance
• PayScale:  www.payscale.com Provides an immediate and precise patent-pending real-time profiling system that indexes custom employee attributes and specific job titles for every industry
• JobStar:  www.JobStar.org Offers government, nonprofit and other salary survey links
• Monster.com:  www.Monster.com Provides an online salary calculator
• CareerBuilder.com:  www.CareerBuilder.com Provides an online salary calculator
• Bureau of Labor Statistics' Occupational Outlook Handbook:  http://www.bls.gov/OCO/ Offers information, for hundreds of jobs, regarding the training and education needed, earnings, expected job prospects, what workers do on the job and working conditions
• Glassdoor.com:  www.Glassdoor.com Encourages people to post salary information anonymously
• CNN/Money Web Site:  money.cnn.com/ Provides cost-of-living comparisons for relocations
• APP.com: http://www.navref.org/newsletter/2010/update_05-06-2010.htm Publicly available base salary information for general employees
• Office of Personnel Management Salary Tables and Related information:  http://www.opm.gov/oca/10tables/index.asp Federal pay schedules and locality pay rates