There is constant discussion of what factors should be considered when determining a nonprofit executive director’s salary. As of June 2020, the average salary of a nonprofit executive is just about $73,000 a year. An executive’s annual income can range from as low as $50,000 to $107,000 a year depending on the individual’s performance on the job, organizational success, and mission attainment.

Factors of the Nonprofit Executive Director Salary

An executive director’s salary is based on a variable compensation plan where income is determined on the outcomes of organizational programs, fundraising, and the ability to cut down on expenses. This can be unappealing to the public eye of potential donors since it focuses on the financial success of the nonprofit instead of mission attainment. 

As financial success becomes the preferred method of determining an executive’s salary, the IRS has initiated rules and procedures for nonprofits to explain what their compensation plan entails. 

Depending on the nonprofit, nonprofit executives can make a percentage of the budget. It is important to note with this method that if an organization doesn’t make much revenue it may have a hard time attracting qualified and experienced candidates for the position or if they make large revenue, this may infuriate other employees, donors, or potential supporters. 

What to Consider

Since executive directors truly do make large impacts on a nonprofit organization, it is fair to assess their performance, organizational success, and mission attainment to determine their salary. Due to an executive’s decision-making, an organization may make more in revenue from increasing fundraising, correctly budgeting, and being authentic toward their desire for mission success. An executive is the face of the organization, so if there is an increase in donors because of the executive’s own personal characteristics and ability to delegate, they should be compensated for those efforts. 

If the organization is experiencing financial success, this will lead to mission attainment. It is important to understand the organization must sustain itself while also providing for the betterment of its cause. When the director’s input is low, it results in low organizational funding and reflects their inability to provide for the cause.

Federal Regulations  

Federal law makes it clear that paying your executive director should not be completely subjective. The IRS stated that executives should be ‘reasonably compensated’ in which the salary reflects the salary of other executives that are also doing a similar job. Of course, many factors still come into play when deciding the salary such as organization size, revenue, ability to maintain a budget, and success of the organization. 

Some states have laws regarding the executive director’s salary to avoid executives being overcompensated. Some rules require that if a nonprofit has over a $2 million budget, board members must approve the executive’s salary, or if a nonprofit collects state grants and funds, they are only allowed to spend a certain set amount on their salary. Executive directors still need to be paid and paid adequately for their efforts to help the nonprofit further its future toward the success of its mission.

It will always be hard to satisfy everyone with decisions regarding payroll and salaries. An Executive director should be compensated fairly for their great responsibility of managing an entire organization. Whether the executive does an exceptional job or an inadequate job at representing the nonprofit organization, their salary should reflect their efforts.

Financing Solutions Nonprofit Finance Solution is A Nonprofit Line of Credit

Nonprofits often have a problem getting any type of financing due to a bank’s requirement for collateral and personal guarantees but yet many nonprofits have a use for a line of credit.

Since 2012, A+ 5-star BBB-rated Financing Solutions has been a leader in providing business loans for nonprofits in the form of a 501c3/not-for-profit line of credit who have revenue of at least $200,000 per year. The nonprofit credit line costs nothing to set up, nothing until used, and is inexpensive when needed.

Nonprofit organizations and Executive Directors often use their credit lines for emergencies to pay important bills like payroll, rent, or other critical bills to continue programs until reimbursements/donations come in.

The 2-minute online no-obligation application is easy to fill out and allows a nonprofit to get the credit line set up and ready to go if ever needed. Consider getting an offer today.

Nonprofit line of credit application.