As described in the sections of this booklet on self-dealing and excess benefit transactions, the Internal Revenue Code imposes excise tax penalties when unreasonable or excessive compensation is paid to high-level employees of charitable organizations. Examples of excessive staff compensation that get the most attention by elected officials and the media tend to involve compensation paid to the president or CEO.
Generally, reasonable staff compensation is defined as what similar persons in similar positions with similar duties at similar organizations are paid.
Both private foundations and public charities may determine appropriate staff compensation, particularly for senior-level positions, using the guidance provided by the rebuttable presumption procedure described in the excess benefit transaction rules. Although these rules only apply to community foundations and other public charities, the rules offer useful guidance for all foundations on best practices to follow for compensation decisions.
Although private foundations may wish to use the rebuttable presumption procedure as a matter of good governance, it is important to note that only public charities currently get the benefit of the rebuttable presumption.