Given the broad concern about the high levels of corporate executive compensation these days, and the millions earned annually by Walmart’s top executives, I recognize that a commentary praising Walmart’s board’s handling of their executive compensation might not be popular.

That notwithstanding, from my point a view — based on over 40 years of consulting on executive compensation in all sectors of the economy — Walmart’s board of directors has got everything right. Their most recent proxy statement describes in transparent and useful detail the processes they use to determine pay and incentives for their top officers. …

From time to time, nonprofit boards are faced with damaging negative publicity claiming that their executives are excessively paid. Sometimes, these charges are fair, but often they are not. Either way, however, the publicity can result in embarrassment and a loss of donor support. Thus, boards should be prepared to manage communications should someone from the press or a regulator raise questions concerning the level of executive pay.

If the questions are raised by regulators, such as part of an IRS audit, the best approach is to make sure that both inside and outside counsel are involved and follow their…

If well designed, an incentive bonus plan can be an effective component of an organization’s overall compensation program. Many 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 compensation program without increasing fixed costs.
  • Provide a stronger relationship between compensation and performance.
  • Focus executives on specific board-approved goals.

The last point above is important. With rare exceptions, employees in nonprofits with incentive plans don’t work harder…

When it comes to governance of nonprofit executive compensation, effective boards recognize that their primary responsibilities are to review and approve the CEO’s remuneration, advise and consent on the pay of other key executives, ensure that the organization’s compensation and benefit levels are sufficient to attract and retain the needed talent, and ensure that the costs of these programs are reasonable from a budget perspective.

Most boards (or their compensation committees) do this well. When they don’t, it is usually the result of one or more of these three problems:

Failure to conduct periodic CEO performance evaluations.

A surprisingly large…

How Much Is Too Much? Assessing Leadership Pay in Nonprofits

High executive pay in some nonprofits is facing more criticism these days, as illustrated by a WSJ article this week on high six-figure pay for headmasters in New York City private schools. High nonprofit pay clearly has the attention of Congress, with the new tax law’s 21% excise tax on compensation over $1 million for a nonprofit’s five highest paid employees. And every year proposals to curb nonprofit executive pay flare up in state and local governments.

Nonprofit boards and donors should not succumb to these pressures. Of course, pay for nonprofit executives should be reasonable in terms of comparable…

SmithPilot Inc.

Consultants on Nonprofit Compensation

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