Council Releases Guidance for Nonprofit Boards on Reasonable Executive Pay

The Council released sector guidance that clarifies nonprofit boards are responsible for hiring and establishing reasonable executive compensation and outlines practical steps boards and HR leaders can use to set and defend pay.

The guidance recommends an annual, documented review process for executive pay and directs boards to specific sources of comparability data, including state nonprofit associations, Candid, and compensation consultants. It lists practice pointers that mirror steps many nonprofits already use: time the salary review to coincide with the annual budget cycle, document the review procedure and board action, and retain the comparability data that informed the decision. Those details are intended to help boards create defensible total compensation packages for executive staff.

For nonprofit employees and middle managers, clearer and documented pay-setting processes can improve perceptions of fairness and reduce friction around salary decisions. Human resources teams will shoulder much of the operational work: assembling benchmark data, preparing materials for the board, and maintaining records of the methodology used to arrive at salary levels. Boards that follow the guidance can better show that compensation decisions were governance-driven, data-based, and aligned with organizational budgets.

The guidance also affects board dynamics. Board members who vote on executive pay will be expected to rely on contemporaneous comparability data and to record deliberations and votes in minutes. That raises the bar for conflict-of-interest procedures and for ensuring that compensatory decisions are made by directors who are informed and independent. Smaller organizations that lack in-house HR capacity may lean on state associations or hire compensation consultants to gather benchmarks and craft market analyses.

The Council’s emphasis on timing reviews with the budget cycle links compensation decisions more directly to organizational affordability. That can limit midyear surprises for program staff and reduce downstream personnel adjustments that disrupt operations. Retaining the data and documenting procedures helps organizations respond to donor questions, board inquiries, and any external scrutiny about how executive pay was set.

What this means for nonprofit leaders is practical: schedule an annual compensation review, gather documented comparability information from state associations, Candid, or consultants, and record the board’s process and rationale in meeting minutes. Those steps make pay-setting more transparent and defensible, and they help align executive compensation with both mission priorities and fiscal realities.