The rules for executive compensation at tax-exempt organizations are complex. H. David Wright, chief strategy officer at Triscend, shares advice structuring packages that work for the executive and the association.
How can associations remain competitive when it comes to executive compensation?
Associations are limited in the amount and types of compensation and supplemental retirement benefits they can offer to attract senior-level talent. However, within these limitations, there are opportunities and areas where associations have advantages that they can capitalize on. The first part of remaining competitive is to fully understand the options for tax-exempt organizations. Associations can work with experts to structure arrangements that achieve recruitment and retention objectives without sacrificing the organization’s long-term financial health.
What pitfalls should associations avoid when structuring executive compensation arrangements?
We find that many associations don’t have a disciplined approach to evaluating potential options, from either their vantage point or that of the executive. Associations should critically analyze the supplemental retirement portion of the package from multiple perspectives. This allows organizations to fully evaluate alternatives, leading to the best decision given their facts and circumstances.
What rules or regulations are likely to trip an association up?
One of the key components of an executive’s compensation package is a supplemental retirement plan, which can be subject to a number of regulatory restrictions. For example, a new Internal Revenue Code section (Section 4960) imposes an excise tax, payable by the organization, on compensation exceeding $1 million. While this threshold may not affect an association on an annual basis, supplemental retirement plans that accumulate value over a long time period and are paid at retirement could trigger substantial tax liability.