A question came up the other day from a colleague regarding oversight of a non-profit organization’s staff salaries by that organization’s board of directors. He wanted to know what rights a board has in knowing, approving, and otherwise managing salaries. The answer (as usual) is: it depends!
Board oversight of salaries varies along a spectrum of extremes. At one end, the board can insist on approving every salary for every staff member. On the other end, the board will never see a salary report. However the board structures its oversight, it needs to establish a formal process to exercise that oversight.
One approach is for the board to implement a policy that gives it the power to approve salary ranges. This ensures that the board has considered the strategic matters related to salaries: whether the schedule is in line with the organization’s values, whether there is appropriate internal equity or differences among positions and departments, whether specific positions are appropriately placed on the scale, whether compensation is in line with that at similar organizations, and/or whether the compensation supports (rather than hinders) the organization’s ability to recruit qualified staff.
The salary schedule is proposed by executive staff to a designated board committee, which then reviews it and sends to the whole board for approval. In this way, the executive staff is still responsible for individual salaries, but the range of salaries is one approved by the board.
Once a year, the designated committee reviews the specific salaries of the staff (by name and position) against the salary schedule, to ensure that no individuals are being paid outside the range for that person’s position. The committee’s job is to protect against favoritism and ensure compliance with the salary schedule, not to review whether any specific individual deserves a particular salary.
With this type of policy in place, the board is able to provide oversight of salaries without taking away the chief executive’s authority or responsibility for individual salaries.