How to Benchmark Nonprofit Executive Compensation

The Benchmarking Process

Benchmarking nonprofit compensation means comparing what you pay against what similar organizations pay for similar roles. This guide walks through how to use nonprofit salary data from IRS Form 990 filings, which function as a comprehensive, publicly available nonprofit salary survey, to build a defensible compensation analysis.

Each step builds on the last. Start by defining who you're comparing against, then look at the data, then drill into specifics.

Step 1: Define Your Comparison Set

Start by identifying organizations similar to yours along three dimensions: organization size (revenue and assets), geography (national vs. regional vs. local labor markets), and mission area (NTEE code, or National Taxonomy of Exempt Entities, which defines the subsector).

A children's hospital in Chicago shouldn't benchmark against a rural food bank. Even within the same subsector, a $50 million organization operates differently from a $2 million one. The IRS expects compensation decisions to be based on comparable organizations, and "comparable" means similar along these dimensions.

For example, a $5 million environmental advocacy organization in the Midwest might compare against organizations with $2M–$15M in revenue, in the same region, with related NTEE codes. Start broad, then narrow. If you filter too aggressively, you'll end up with too few data points. If you don't filter enough, the range will be too wide to be useful.

Step 2: Find the Range

Once you have a comparison set, look at the range of compensation for the role in question. The median (50th percentile) is the middle value: half the organizations pay more, half pay less. The 25th percentile marks the lower end of the range, and the 75th percentile marks the upper end. Together, these three numbers give you the shape of the market.

Think in ranges, not single numbers. No two organizations are identical, and a single data point can be misleading. A range gives the board room to make a decision that accounts for the specific person's experience, the organization's financial position, and local market conditions.

The range tells you what the market looks like. The next step, looking at specific peers, tells you why your organization might land at a particular point within that range.

Step 3: Look at Specific Peers

After understanding the range, drill into specific organizations you consider true peers. Look at the full compensation picture: Form 990 reports total compensation, which includes base salary, bonus and incentive pay, retirement plan contributions, and nontaxable benefits like health insurance.

Be careful with year-over-year comparisons. A single filing year can reflect unusual circumstances (large one-time payouts, leadership transitions, or reporting timing differences) that make the number look higher or lower than the ongoing compensation. When possible, look at multiple filing years for the same organization.

Step 4: Document Your Process

The IRS rebuttable presumption of reasonableness requires three things: using comparable data, independent board or committee review, and documenting the decision. If the board follows these steps, the burden shifts to the IRS to prove the compensation is unreasonable rather than the organization having to defend it.

This means keeping records of what data you reviewed, which organizations you considered comparable and why, and how the board arrived at its decision.

How Lucido Helps

Lucido lets you search compensation data by role, filter by organization size and geography, and compare across peer organizations, all from IRS Form 990 filings.