This publication covers the rules for organizations that are seeking exemption from federal income tax under section 501(a) of the Internal Revenue Code and explains the procedures to follow in order to obtain the appropriate determination letter for an organization's status. (IRS)
executive compensation
Nonprofits must establish that the executive compensation (salary and benefits for senior level personnel) provided at their organization is "reasonable and not excessive." The IRS recommends a three step process referred to as "rebuttable presumption" to substantiate the reasonableness of compensation offered by an organization and provides legal guidelines:
Leading a nonprofit is a tremendous responsibility for both boards of directors and executives. Boards that don’t pay attention to executive evaluation and compensation are opening the organization up to serious risk.
Nonprofit boards of directors can adapt these sample policies for CEO evaluation, compensation, and emergency succession. See also: the Kentucky Nonprofit Network's Sample Executive Compensation Policy.