Paying Yourself at Your Not-for-Profit

Love or Money PicI love anyone who is motivated and altruistic enough to start a not-for-profit. Starting any business is hard work, but deciding to create a “business’ that you will never be able to sell or reap profits from takes a special kind of dedication. Starting and running a not-for-profit can take up tons of time and energy totaling more than 40 hours a week.  It is no surprise that many people who start NFPs eventually want to earn a salary. The creator often has plans to become the Executive Director. Here are some guidelines you should keep in mind if you want the not-for-profit you created to eventually hire you.

First: Your Board of Directors should be made up of volunteers. This means if you want to be on the Board of Directors (the group responsible for making decisions about who the executive director should be and making strategic decisions about the organization) you should not plan on taking a salary.

Second: If you are on staff you WILL have to give up some control to the Board. The group of people that make up the Board of Directors is running the organization.   Technically, they are the boss of the organization’s Executive Director. They should be setting the ED’s salary and providing overall direction for the organization.

Third: You shouldn’t ever receive a crazy high salary. U.S. law sets out that tax exempt organizations should pay “reasonable compensation’ to its employees and executives. The market determines what is reasonable, so before setting a salary for yourself you should look into what other organizations in your field pay their executives.   Yes, this is an imprecise guideline, but it is something to keep in mind.

Final thoughts: Because of the public nature of a not-for-profit, the creator has to give up some control. Don’t be surprised when the time comes to pick your initial Board to hear requests that the Executive Director not be listed as a Board member. Starting from a place where roles are clearly delineated makes the transitions that much easier as your organization grows.

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