Nonprofit Board Compensation Review File Guide

A board can make a fair pay decision and still keep a weak file.

That is a problem. Executive compensation review is not just a private board conversation. It can affect Form 990, audit questions, donor trust, and IRS excess benefit risk. The file should show what the board reviewed, who approved the decision, and how conflicts were handled.

Use this guide with the executive compensation reasonableness guide and the Form 990 board review checklist.

Start with the role

The file should start with the role being reviewed.

Include:

• title
• current job description
• reporting relationship
• budget size overseen
• staff size overseen
• grant or compliance duties
• major changes since the last review

Do not assume a future reviewer knows what the executive director does. The role may have changed because of growth, new grants, new programs, or staff turnover.

Show the full pay package

Review the full package, not just base salary.

Include:

• base salary
• bonus or incentive pay, if any
• retirement contributions
• health benefits
• taxable allowances
• housing or vehicle benefits, if any
• deferred compensation
• severance or contract terms
• expense reimbursement policy

IRS Form 990 instructions include compensation and governance questions. A file that shows only salary may be incomplete.

Add comparable data

Comparable data helps the board explain why the pay is reasonable.

Use sources that match the role as closely as possible. Consider:

• organization budget
• geography
• mission type
• staff size
• grant complexity
• executive duties
• similar job title

Do not use only the highest data point. Save the data used and note why it was chosen.

Document conflicts

The person whose pay is being reviewed has a conflict. They may provide facts about the job, but they should not control the decision.

The file should show:

• who had a conflict
• whether the person left the room
• who reviewed the data
• who voted
• whether the vote was independent

Use the annual conflict disclosure guide to keep disclosures current.

Keep minutes clean

The board minutes should document the decision without turning into a personnel file.

Minutes can include:

• date
• role reviewed
• data reviewed
• conflict handling
• amount or package approved
• effective date
• vote result

Keep sensitive performance notes in a separate personnel record with limited access. The compensation review file should be shareable with the tax preparer or auditor when needed.

Tie the file to Form 990

The tax preparer may ask for compensation support, board approval, and conflict notes. Keep the file where finance can find it during Form 990 prep.

Do not wait until tax season to collect support. Build the file when the decision happens.

Add a short board memo

A short memo can make the file easier to read later. It should not argue that the board made a perfect choice. It should state what the board reviewed and what it approved.

Include the role, date, comparable data sources, conflict steps, approved package, and effective date. Link the memo to the minutes. If the board considered a major role change, name it plainly.

This memo helps a new treasurer, auditor, or tax preparer follow the decision without sorting through every meeting note.

Include grant and compliance scope

For grant-funded nonprofits, executive responsibility may include federal grants, restricted funds, audits, subawards, or complex reporting.

If those duties affect the role, note them in the file. Do not claim complexity without proof. Name the actual duties:

• number of active grants
• federal award responsibility
• audit oversight
• restricted fund oversight
• staff supervision
• program growth

This helps the board connect pay to the real job.

Keep a file checklist

Use this checklist:

1. Job description.
2. Current pay package.
3. Comparable data.
4. Conflict disclosures.
5. Meeting agenda.
6. Board or committee minutes.
7. Approval memo.
8. Effective date.
9. Form 990 support note.
10. Storage location.

The file should be complete enough that a future treasurer can understand the decision without asking everyone to remember it.

What to avoid

Avoid vague statements like “The board discussed compensation.” Avoid approving pay through email without a clear record. Avoid letting the executive pick all data. Avoid mixing private performance notes into a general finance folder. Avoid backfilling the file months later.

Where GrantPipe fits

GrantPipe is not a payroll or board governance system. It can help store approval records and supporting documents when compensation decisions connect to restricted funds, grant-funded roles, or audit evidence. That can make the support easier to find during Form 990 or audit review.

The board’s standard is simple. Make a fair decision. Use good data. Handle conflicts. Keep the proof.

Review the file once a year, even if pay does not change. Add a dated note that says the board reviewed the current package and whether any change was approved. That small note shows the process stayed active.

DEFINITION

Comparability data

Pay data from similar roles, organizations, locations, budgets, or responsibility levels.

DEFINITION

Disqualified person

A person who may have substantial influence over the nonprofit, such as certain officers, directors, or key leaders under IRS rules.