Nonprofit Executive Director/CEO Evaluations – A Best Practice

On its website, www.councilofnonprofits.org, the National Council on Nonprofits highlights 5 Basic Good Governance Practices as follows:

5 Basic Good Governance Practices

1. Maintain minutes of all board meetings (and committee meetings for committees that are authorized to act on behalf of the board, such as an executive committee). (See IRS Form 990, Part VI, Section A, line 8)
2. Annually review a written policy and complete a questionnaire about conflicts of interest. (See IRS Form 990, Part VI, Section B, Line 12) and document in minutes of board meetings when the policy is invoked.
3. Approve the executive director/CEO’s compensation and benefits, and document how the board determined that the compensation is appropriate, and not excessive. (See IRS Form 990, Part VI, Section B, line 15)
4. Require the board to review a copy of the IRS Form 990 before it is filed. (See IRS Form 990, Part VI, Section B, line 11) For smaller nonprofits that only file the Form 990-N, make sure the board knows about the annual filing requirement.
5. Disclose to the public the nonprofit’s three most recently filed annual returns with the IRS, as well as its application for tax-exemption and related correspondence and attachments.

Relative to #3, the Council states that a board of directors is responsible for hiring and establishing the compensation (salary and benefits) of the executive director/CEO by identifying compensation that is “reasonable and not excessive,” but that also is attractive enough to retain the best possible talent to lead the organization. The recommended process for determining the appropriate compensation is to conduct a review of what similarly-sized peer organizations, in the same geographic location, offer their senior leaders. Nonprofits filing IRS Form 990 must describe the process they use to approve executive compensation as part of the nonprofit’s responses on the annual return, IRS Form 990, Section VI, Part B, line 15.

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At Tweed-Weber, we believe strongly that the overall performance of the nonprofit executive director/CEO should be evaluated by the board on an annual or biannual basis as a companion to the peer review. To that end, we have developed an evaluation tool and turnkey process that “leaves the driving to us.” We can help you Know More, so you can Do More. Call us toll-free at 1-800-999-6615, email us at mail@tweedweber.com and/or visit us on the web at www.tweedweber.com. Also, be sure to follow us on LinkedIn (Tweed-Weber, Inc.) and Twitter (@TweedWeber).