When it hits the fan: advice for nonprofits on negative compensation publicity

From time to time, nonprofit boards are faced with damaging negative publicity claiming that their executives are excessively paid. Sometimes, these charges are fair, but often they are not. Either way, however, the publicity can result in embarrassment and a loss of donor support. Thus, boards should be prepared to manage communications should someone from the press or a regulator raise questions concerning the level of executive pay.

If the questions are raised by regulators, such as part of an IRS audit, the best approach is to make sure that both inside and outside counsel are involved and follow their advice based on the inquiries that the regulators have raised. Inquiries from the press are usually more difficult and more biased and require special handling. In such cases, we recommend the following:

  1. Respond carefully but quickly — if these inquiries fester, there is the impression that you are trying to hide something.
  2. Designate a spokesperson who is neither the Chief Executive or the Board Chair. The Chief Executive cannot defend his or her own compensation without looking either self-serving or defensive. Having someone other than the Board Chair (say, the head of the governance or compensation committee) make the initial response allows for the Chair to step in later with a clarifying statement if the initial message is not well received.
  3. Be transparent. You should have nothing to hide, and the failure to mention some benefit or perquisite or other compensation element will backfire if the press finds out about it after you’ve commented.
  4. Emphasize that, as a nonprofit with a strong charitable mission, the board takes great pains to ensure that executive compensation is not excessive or unreasonable.
  5. If your compensation strategy is the same for your executives as it is for all levels of the organization (paying competitive market salaries and benefits to enable you to attract and retain capable employees who can provide the best possible services to the people you serve), point this out as well.
  6. Inform the press that the board regularly reviews the reasonableness of executive compensation and benefits and that all final decisions on executive pay are made by uncompensated and independent directors.

If your board has any sense that negative publicity about your executives’ pay levels could occur, having a pre-planned communications strategy and following the steps above could be very helpful.

Pete Smith, Founding Partner, Smith Pilot Inc.