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Are Christmas bonuses OK?

Your Legal Questions Answered

Are Christmas bonuses OK?

Is there anything illegal about our 501(c)(3) organization giving a Christmas bonus, or an incentive for a fundraiser that she initiated, to the Executive Director if she is already receiving a salary?

There is nothing illegal about giving bonuses to the staff of charitable organizations so long as they are not based on the “profit” or surplus of the organization.  The IRS takes the position that if incentives are based on profits, there is an incentive to cut services, which it does not consider charitable.  If you give an incentive for a fundraiser, you probably don’t want it to be commission-based because the professional fundraising community thinks that is unethical.
In either case, you should be sure that the total compensation is not unreasonable so that there is no “excess benefit” for the E.D.  You want to be sure to follow the safe harbor rules to assure that you have a rebuttable presumption that the total compensation is reasonable.  (See Ready Reference Page: “Charities Must Avoid Excess Benefit Transactions.)

Tuesday, December 9, 2008
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Comments

Here’s a question for one of your issues: why the heck does the professional fundraising community think paying fundraisers on the basis of the amount raised is unethical? This has never made ANY sense to me.

It's a way of protecting donors from giving beyond their means because of pressure from a fundraiser. If a fundraising representative has a personal stake in the amount the donor may give, they're more likely to put undue pressure on that donor to give a greater amount than they may be comfortable with.

That's my understanding anyway, but it sure makes hiring high-performance fundraisers a conundrum!

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