How do we set staff compensation?

Should you choose to hire paid staff, compensation must be reasonable and the services provided must be reasonable and necessary for the carrying out the tax-exempt purpose of the private foundation. Compensation may even be provided to a disqualified person (staff or board member) as long as the aforementioned standards are met.

The first piece to ensure is that the services are reasonable and necessary to carrying out the tax-exempt purposes of the foundation. Under this test, the work must further the foundation’s charitable purposes; the staff person must be qualified to perform these services; and the extent of services must be reasonable for this particular foundation. Consider whether you need administrative or professional help and the number of hours needed to accomplish the work.

The second piece to ensure is that the amount paid is reasonable. The IRS says that reasonable compensation “is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances.” In order to compare salaries for like services, you should consult salary surveys, such as the ASF Foundation Operations and Management Report, or the Foundation Management Report published by the Council on Foundations. When searching for comparables, you may want to pay particular attention to the asset size of your foundation, its volume and type of grantmaking activities, experience level of the person to be hired, number of hours he/she will be working, and the geographic region in which he/she will be working.