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If members, who support the organization through their dues and conference fees, are denied access to the E.D. contract, how can they determine if there is possibly excessive compensation taking place?

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If members, who support the organization through their dues and conference fees, are denied access to the E.D. contract, how can they determine if there is possibly excessive compensation taking place?

The board of directors of our 501(c)(3) nonprofit corporation will not share the new Executive Director’s contract with the members. If members, who support the organization through their dues and conference fees, are denied access to the E.D. contract, how can they determine if there is possibly excessive compensation taking place? The new budget has our Association operating at a huge deficit this year which is causing many of us deep concern over our economic stability.

Assuming that your members have the right to vote for the directors and other legal rights like those of shareholders of a business, they probably have the right under the state nonprofit corporation law to review the books and records of the corporation.  This should include a copy of the employment agreement with the new Executive Director.  Even if the compensation would not be considered a taxable excess benefit, it may be more than the organization should be paying under the circumstances.  At the very least, it is an issue the next time directors are up for election or re-election. 

If the board is self-perpetuating and the “members” are merely contributors and purchasers of services, the members probably don’t have a right to information on the contract. But since the compensation will ultimately be publicly reported on a Form 990 or 990-EZ (if the organization has gross revenues of more than $50,000 this year), there is a good argument that the information should be disclosed now, without waiting for the filing of the tax return.  If the members don’t get the information they want, they will have to decide whether or not to continue to support the organization.

Tuesday, June 7, 2011

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