Executive Perspective on Top Risks for 2014 – Comparison of for-profit concerns with those of tax-exempt organizations

Protiviti reported their survey results from executives in the for-profit sector regarding their Top Ten Risks for 2014:

  • Regulatory changes and scrutiny
  • Economic conditions
  • Uncertainty surrounding political leadership
  • Succession planning for key employees and board
  • Organic growth
  • Cyber threats
  • Organizational resistance to change
  • Privacy and identity security system protection
  • Compliance with healthcare reform legislation
  • Volatility in financial markets

Other concerns include setting appropriate executive compensation and addressing the growing demands of compliance oversight.

Not surprising, the risk concerns stated above are very similar to those experienced by executives in the tax-exempt sector. Why is that? To remain viable within a commercial setting, a for-profit business must remain healthy, relevant and profitable. To compare, a tax-exempt organization must also remain healthy and relevant in order to meet its mission statement into the future.  The similarity is the need for relevance and strong financial health.  The contrast is that the goal of a for-profit enterprise is solely profitability, not the specific product or service it provides. This differs fundamentally from a tax-exempt organization that exists to accomplish its mission. In other words, for the tax-exempt organization, financial health is a means to accomplish its goal, not the goal itself.

Year End Compensation Reporting

2W-Form-2012-1It’s the time of year when organizations are preparing for year end tasks, including W-2 and 1099 reporting of compensation. There are many aspects to this process, and it can be complex.

The accounting services team at Eide Bailly has prepared a very helpful resource – The 2012 Year-End w2/1099 Guide.

The 1099/W2 book provides instructions for common 1099 and W2 reporting issues including:

  • How to complete various forms, as well as making corrections to those forms
  • Common tax reporting and employee benefit issues
  • Changes for the following year, such as new tax rates and wage limits

The guide is available for download on the website – www.eidebailly.com/services/accounting-services/.

Nonprofit Executive Compensation

IRS Form 990 has a number of items requiring information regarding the compensation of the executives of the nonprofit organization. One of the questions asks for details regarding the methods used to establish compensation for the CEO/Executive Director.

It is often recommended that nonprofits organizations establish a compensation committee to establish executive compensation. Organizations without a compensation committee may use the executive committee for this task. Most nonprofit organizations involve the board in some way (through committee or as a whole), in order to fulfill the fiduciary responsibilities as a board member. Often this includes a board vote on the compensation.

Those charged with the determination of compensation can use a number of tools to accomplish this task. Many organizations use their human resources personnel or independent consultants to analyze comparable salaries. It is common to use various salary studies to compare the organization with other nonprofits. It is less common to compare the organization with similar for-profit entities. The analysis is most commonly performed on an annual basis.

Strong nonprofit governance includes a policy that enables the board to make fair and reasonable compensation decisions.