Executive Compensation: Balancing Leadership Value and Sector Responsibility
June 16, 2025At NHSA, we know that executive compensation isn’t just about salaries, it’s about aligning leadership with mission, values, and public trust. As we prepare to release our annual compensation survey report, here are some guidelines and examples your organization might consider when navigating executive level compensation.
Breaking Down the Components of Executive Compensation
Executive pay goes beyond base salary. It includes benefits, incentives, deferred compensation, and sometimes housing or relocation support.
Example: A nonprofit CEO receives a base salary, health coverage, a 403(b) plan, and a performance bonus tied to fundraising success.
Analyzing Current Trends in CEO Pay
Across the nonprofit sector, CEO compensation is rising modestly—often linked to organizational growth, complexity, and performance expectations.
Example: A national human services organization increased its CEO’s salary after benchmarking peer organizations and identifying retention risks.
Balancing Public Accountability with the Need to Attract Top Talent
Mission-driven organizations must balance public expectations with the need to compete for experienced leaders.
Example: A regional nonprofit hired a CEO at a six-figure salary amid scrutiny but highlighted the leader’s success in tripling the organization’s budget.
Clarifying the Board’s Role in Determining Executive Compensation
Boards are legally and ethically responsible for setting executive pay through fair, data-driven processes.
Example: A governance committee used third-party benchmarking and annual performance reviews to set CEO compensation transparently.
Ensuring Compensation Supports the Organization’s Mission
Pay strategies should reflect an organization’s impact, values, and service—not just financial metrics.
Example: A youth-focused nonprofit ties bonuses to program outcomes like reach and effectiveness rather than fundraising numbers alone.
Establishing a Clear and Consistent Compensation Philosophy
A formal compensation philosophy helps ensure fairness, equity, and sustainability across leadership decisions.
Example: A statewide coalition adopted guiding principles focused on internal equity and fiscal responsibility to shape pay practices.
Identifying and Evaluating Comparable Market Benchmarks
Using accurate comparable ensures compensation is both competitive and justifiable within the right peer group.
Example: A health nonprofit benchmarks against human services organizations—not hospitals—to maintain relevancy and fairness.
Complying with Relevant Legal and Regulatory Requirements
Organizations must follow IRS rules on “reasonable compensation” and keep clear documentation to avoid compliance risks.
Example: A nonprofit used board minutes and an external consultant to validate compensation decisions and safeguard legal standing.
Maintaining Transparency to Earn Public and Stakeholder Trust
Executive pay should withstand public, media, and donor scrutiny, backed by transparent processes and documentation.
Example: When questioned by a reporter, an advocacy nonprofit cited its public Form 990 and third-party pay review as proof of good governance.
Negotiating Terms and Finalizing the Executive Contract
Executive contracts should clearly outline responsibilities, severance terms, and performance goals to protect all parties.
Example: A CEO’s agreement included a 90-day exit clause, annual performance benchmarks, and a non-compete provision.