For tax-exempt organizations, the IRS requires annual disclosure of all compensation and benefits paid to directors, the CEO, and other key employees. The recently updated IRS Form 990, which must be filed beginning this year, increase the disclosure requirements; it can be expected that compensation information will be analyzed closely and reported widely. In both tax-exempt and public companies, the board of directors is responsible for establishing executive compensation policies and programs and ensuring they are complete, consistent with pertinent rules and regulations, and implemented carefully. This is among the board’s basic fiduciary responsibilities and demands the board’s ongoing attention.

To assist boards in assessing its performance in this area, here are some key questions that should be asked and answered affirmatively:

1. Has the board adopted a formal statement of the organization’s philosophy on executive compensation?
2. Has the board approved a formal description of the organization’s executive compensation program?
3. Has the board assigned clear oversight responsibility for executive compensation functions to a standing board committee?
4. Does the board ensure that “rebuttable presumption of the reasonableness of executive compensation arrangements” is firmly established and reviewed on a regular basis?
5. Has the board installed an evidence-based executive performance evaluation system that includes strong, direct linkage between job performance and compensation?
6. Are the board and management team prepared to deal with close scrutiny, public disclosure, and media attention to the organization’s executive compensation philosophy, policies, and programs?