Nonprofits brace for greater scrutiny of executive compensation

The furor over bonuses at AIG and other Wall Street firms that have received government funds is prompting nonprofits to brace for more scrutiny of their executive pay practices, The Wall Street Journal reports.

While nonprofits have yet to receive taxpayer bailouts like some Wall Street firms, they benefit from billions of dollars in tax subsidies — and that, say experts, could expose nonprofit leaders to the same level of scrutiny with respect to their compensation that executives at financial firms are facing.

The IRS has signaled that more aggressive oversight of nonprofit compensation is likely. Recently, the agency completed an overhaul of Form 990 that requires nonprofits to disclose compensation perks under certain circumstances, and it has increased its scrutiny of nonprofit hospital executive compensation.

Indeed, while Sen. Charles Grassley (R-IA) is considering legislation that would put more pressure on charities to prove that their executives are “reasonably” compensated, attorney Michael Peregrine, a partner at McDermott Will & Emery, is advising organizations to review their pay practices sooner rather than later in light of the political environment.

“The train of greater focus on nonprofit executive compensation has left the station, and charity boards better get on, or they’re going to suffer greatly for noncompliance,” Peregrine told The Wall Street Journal. “It just cannot be business as usual.”

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