While executive compensation -- generally speaking -- seems to perpetually be an attention and headline grabbing topic, those overseeing executive compensation in nonprofits must navigate their own, less-publicized set of challenges, risks and regulations. At or near the top of this list is compliance with IRS Section 4958, commonly referred to as the "Intermediate Sanctions" law.
IRS 4958 imposes penalties (termed "intermediate" because they represent an alternative to the ultimate penalty of revocation of an organization's tax-exempt status) when disqualified persons (often, but not exclusively, members of the organization's executive team) receive an excess benefit (which includes cash compensation as well as benefits and perks) from a non-profit. The penalties imposed are significant, and potentially cover both the person who received the excess benefit as well as the organization managers (typically board members) who approved it.
There are a couple of helpful links/resources for nonprofit organizations (and their boards) who wish to learn more about this topic and access guidance and procedural suggestions for establishing a rebuttable presumption of reasonableness, or safe harbor (whereby compensation and any other benefits/perks provided are presumed to be reasonable and at fair market value).
Wikipedia's page on Intermediate Sanctions provides a wealth of information, including a summary of the law and its history, definition of key terms and concepts (including disqualified person and organization manager), outline of potential penalties and an overview of the process required to establish a rebuttable presumption of reasonableness. To go the to Wikipedia entry, click here.
In addition, Steven T. Miller, the IRS Director of Exempt Organizations, has written a detailed article outlining the process for establishing a rebuttable presumption of reasonableness, which includes a helpful checklist for boards to use in following the procedure. To go to Steven Miller's article, click here.