What We Do
To attract and retain qualified executives and ensure that compensation is reasonable from a regulatory and donor perspective, nonprofits need periodically to assess the level of their executive pay and benefits against market practices. We can help with this.
Our executive compensation services include:
- Assessing the range of market pay levels for executives
- Determining appropriate peer comparisons
- Evaluating executive benefits and perquisites
- Developing incentive compensation plans
- Assisting in negotiating compensation for key new hires
- Assuring compliance with federal and state regulations
- Improving board executive compensation processes
IRS regulations require that nonprofit Boards ensure that the remuneration paid to key executives is “reasonable” from a regulatory perspective. To achieve this, executive pay must be determined by independent directors (not the executives themselves), board pay decisions and the basic rationale for them must be documented contemporaneously, and pay must be determined in relation to generally prevailing market rates. Failure to follow these steps can result in fines and excess compensation taxes for involved directors and executives.
Our compliance services assure that these steps are met and, using thorough and detailed market comparisons, result in formal reasonableness opinions that can be used to rebut any claims that compensation is excessive.
Pay programs become more effective when management and the board agree on an overall compensation philosophy, including issues such as:
- The balance between cash compensation and benefits
- The targeted position in relation to the marketplace (e.g., median, 75th percentile, etc.)
- The relationship between pay, performance, and tenure
- The role of incentives, if any
- The ability to pay (budget considerations)
Well-designed incentive bonus plans can be effective components of an organization’s overall compensation program. Some nonprofits avoid incentive plans, either because their mission makes individual performance measurement difficult or in the belief that bonuses aren’t appropriate in a nonprofit setting. Nevertheless, where incentives are appropriate they can:
- Tie compensation expenses to financial results.
- Enhance the competitiveness of your pay program without increasing fixed costs.
- Provide a stronger relationship between compensation and performance.
- Focus executives on specific board-approved goals.
SmithPilot has special expertise in helping you define effective incentive plans, including the following steps:
- Determining who should participate in the incentive plan
- Setting target incentive amounts and comparing with market levels
- Defining performance goals for determining individual bonuses
- Tying the operation of the incentive plan to your long-term strategy
- Ensuring that the board has the appropriate controls
- Deciding whether payments should be in cash or deferred or both
- Developing plan terms and documentation
- Ensuring that the plan payments will be reasonable from a regulatory perspective, including the Intermediate Sanctions regulations
Many nonprofits, especially larger ones, benefit from a formalized system for guiding salary decisions, such as a salary grade or salary band structure.
Our salary structure development services include:
- Assessing market salaries for all positions to be included in the structure
- Determining the appropriate number of salary grades or broad bands for the structure
- Developing a minimum, midpoint, and maximum salary for each grade or band
- Developing guidelines for relating salary increases to position in the salary range
- Assessing the costs of implementing or revising salary structures
- Identifying employees whose salaries fall outside the range parameters (and processes for handling these outliers)
- Developing a matrix to guide managers in determining salary increases by relating employee tenure and performance to position in range
- Testing current pay levels against the structure for pay discrimination
- Developing materials for communicating the structure to managers and employees
SmithPilot Inc. provides expert witness services in a variety of disputes involving executive and employee compensation and benefits. We have a very successful record of providing expert witness testimony in a wide variety of legal disputes, hearings, trials, and arbitrations.