Pay transparency laws and a competitive talent market have increased the need for organizations to be transparent and strategic with their compensation. An integral part of that is compensation or salary benchmarking. Compensation benchmarking uses data about comparable positions with similar organizations to determine a fair and competitive salary range.
5 Guidelines for Compensation Benchmarking
Understand when and how often to benchmark salaries Organizations should benchmark salaries when developing a new position and hiring for a vacated position. In addition, organizations should benchmark salaries for all positions on a regular basis - at least every 2 to 3 years.
Determine the primary responsibilities and location of each position Update or write job descriptions prior to benchmarking. If your organization is developing new roles before writing formal job descriptions, learn as much as possible about the responsibilities, required experience, and work location before benchmarking.
Identify comparable organizations and positions Compile a list of comparable organizations in the same geographic area with similar budgets. Job titles vary, so utilize the job description to determine comparable roles at the other organizations.
Gather and review data from various sources There are state and national nonprofit salary and benefits reports published annually; consider purchasing ones applicable to your organization. Review 990s from similar organizations and current job postings for organizations with comparable budgets or revenue. Gather salary data reported on sites like Glassdoor, Indeed, and Salary.com.
Consider the organization’s overall compensation budget Determine how much the organization can budget for each position and try to be as competitive in the marketplace as your organization’s budget allows.
Special Considerations for Executive Compensation
Compensation benchmarking for executive positions, including senior management roles, plays a critical role in the nonprofit organization maintaining its tax-exempt status. A robust executive compensation policy will ensure IRS compliance and uphold the nonprofit's financial integrity and tax-exempt status.
Compensation paid to executives must be reasonable and comparable to the open market. When developing the salary ranges, a best practice is to ensure the range is comparable to what other similar nonprofit organizations are paying their executives. Excessive compensation can lead to penalties or the loss of the organization’s tax-exempt status under Section 4958.
Compensation information for key employees, officers, and directors (including executives) must be reported on Form 990. This disclosure promotes transparency and should include compensation for all executives.
The Board of Directors should establish an independent compensation committee comprised of individuals without conflicts of interest. The committee should review compensation benchmarking recommendations of all executives and set the annual salaries of members of the executive team, in addition to determining their total compensation (salary plus other forms of compensation and benefits).
Compensation decisions should be documented with a rebuttal presumption checklist and stored per record keeping guidelines.
If your organization needs assistance with compensation benchmarking or developing a compensation policy, contact Cause Capacity to learn more about how we can help!
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