Executive Compensation Best Practices

The Internal Revenue Code provides excise tax penalties that can be imposed by the Internal Revenue Service whenever unreasonable or excessive compensation is paid to high-level employees of charitable organizations. Over and above any legal requirements or public scrutiny, good stewards of philanthropic resources should go the extra mile to be certain that levels of compensation are reasonable. Thus, the Board of Directors of the Council on Foundations strongly urges all foundations to take great care in reviewing and approving the total executive compensation paid to all high level employees, particularly the top executive. When examples of excessive compensation come to light, they receive considerable media attention and negatively influence the perception of foundations and other charitable organizations in the minds of elected officials, their staff members (especially on Capitol Hill) and the general public. Most frequently, the examples that are publicized involve compensation paid to the president or chief executive officer.