Commission Recommendations - Executive Compensation and Excess Benefit Transactions

Religious and Charitable Organizations

  1. Regardless of the provisions of the Internal Revenue Code and related Regulations, the governing bodies of nonprofit organizations should ensure that the compensation (including benefits) paid to organizational leaders is clearly reasonable under the circumstances. When a nonprofit organization provides compensation and benefits that are perceived by the public as excessive, the credibility of the organization and its leadership is undermined, as is the credibility of the entire nonprofit sector. Additionally, such instances serve to increase the threat of more burdensome legislation and regulation that would adversely impact the sector as a whole.
  2. Nonprofit organizations should adopt appropriately robust policies that provide clear and practical guidance for establishing reasonable compensation for their leaders, that properly address conflicts of interest, and that guide them in avoiding excess benefit transactions. Nonprofit organizations should make their policies for setting the compensation of their top leaders and their conflicts-of-interest policies available to donors upon request as a demonstration of appropriate accountability.
  3. When a nonprofit organization engages a compensation consultant to assist it in obtaining appropriate data as to comparability for executive compensation, the members of the body reviewing the study should exercise prudence and diligence to ensure that the data provided by the consultant is for similarly situated organizations and functionally comparable positions, and to ensure that other appropriate factors relevant to comparability are considered.
  4. Nonprofit organizations should, as a best practice, require the total compensation of their top paid leader to be disclosed to or approved by the full governing body of the organization.
  5. We recommend that one or more independent organizations conduct adequate confidential and secure compensation surveys of the largest religious organizations exempt from filing Form 990. The resulting compiled information should be made publicly available in order to provide large religious organizations with more and better comparability data.
  6. Religious organizations exempt from filing Form 990—particularly the largest of such organizations—should actively participate in appropriately managed salary surveys in order to facilitate the availability of more and better comparability data.


  1. To the extent that the Treasury Department has authority to amend the Regulations under Section 4958, we make the same recommendations to the Treasury Department related to the rebuttable presumption of reasonableness as provided below for Congress: the protection afforded by the presumption should be preserved.
  2. The IRS and/or Treasury Department should develop guidelines in the form of Regulations or other authoritative guidance establishing when it is appropriate for a 501(c)(3) organization to utilize data from the for-profit sector in establishing the rebuttable presumption. The process for developing such guidelines should involve ample opportunity for input from the religious and broader nonprofit sector.
  3. The IRS should not require public disclosure, as part of Form 990 or otherwise, of the details of compensation studies and the related compensation data used in establishing compensation for nonprofit organization leaders. However, Form 990 could be revised to require filing organizations to disclose whether data from the for-profit sector was relied upon as comparability data by the organization in setting compensation for its leaders.


  1. The law should not be amended to repeal the rebuttable presumption of reasonableness that affords a reasonable measure of protection to nonprofit leaders pursuant to Section 4958 and the related Regulations.
  2. If, and only if, reliable empirical data supports the premise that nonprofit organizations frequently abuse the rebuttable presumption of reasonableness by improperly using non-comparable data from the for-profit sector in an attempt to establish the presumption, we note that a solution may be to modify the rebuttable presumption standards to require that comparability data for purposes of the presumption come exclusively from the nonprofit sector. If such a modification is made, nonprofit organizations would still be permitted to properly utilize data from the for-profit sector in supporting their position that compensation is reasonable, albeit without the presumption of reasonableness provided for in the Regulations.
  3. Excise tax penalties should not be imposed on individual organization managers (e.g., board members) for approving an excess benefit transaction unless they do so knowingly.
  4. Excise tax penalties should not be imposed on a nonprofit organization itself in connection with an excess benefit transaction.
  5. The law should not be amended to require the governing documents of 501(c)(3) organizations to prohibit excess benefit transactions as a condition of exemption.