Sunday, May 15, 2005

Panel on the Nonprofit Sector #1

OK, time to put up or shut up. The Panel on the Nonprofit Sector has made its second set of recommendations to the Senate public. I've blogged about them before and urged readers to read and comment. Then it occurred to me....I should put my comments on each area here.

So I will, over the next few postings. What you will see is what I'll be sending to the panel when I'm done with all the postings.

Some of the areas that the Panel looked at are outside of my area of expertise. I'll limit my comments to:

Board Compensation, Executive Compensation, Structure Size composition and Independence of Boards of Directors, Travel Expenses, Periodic Review of 501(c)(3) Status, Disclosure of Performance by Public Charities, and Revisions to Forms 990 and 990-PF.

Today, I'll look at the first two areas of interest:

Board Compensation and Executive Compensation.
Click on the topic to see the Panel recommendations in that area. I'll limit my thoughts thoughts.

Board Compensation
This one is simple: board's shouldn't be paid-except for travel reimbursement. Period. End of story. Currently a large number of foundation board members are compensated both for their time and travel. I feel strongly that this is flat out wrong. Foundations are nonprofits, just like direct service providers. Foundation board members are stewards, and their job is to make sure that the most money possible goes to direct service providers, not to their own pockets.

I understand that this has gone on for a long time, and I understand that the rationale for this is that foundation board members are responsible for a lot of money and spend a lot of time at their job. Welcome to the world of most nonprofit board members.....members who get no compensation at all.

So, I don't care if it's tradition, and I disagree with the rationale for its existence. It's wrong, and it should stop. Now.

Executive Compensation.
I have no clients who don't have their executive compensation set by the board, but apparently it occurs, which to me seems a grievous breakdown in the checks and balances designed into nonprofits. I agree with the Panel recommendation here, as well as the recommendation that full exec compensation should be shown on the 990. This is just good transparency.

Setting compensation is a bitch, as everyone who works with salary surveys well knows. I like the Panel's recommendations here, particularly the "rebuttal presumption" since it makes sense, and is less prone to hassle from the Feds for well intentioned organizations (which, as we all need to remember, is 99% of nonprofits).

I most fully agree with the provision that penalties for excess compensation should accrue personally to board members who agree to such compensation. This will, more than anything, put a stop to it.

Tomorrow, we'll look the Structure, Size, Composition, and Independence of the Board of Directors, and Travel Expenses.

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