Executive Compensation

Getting compensation right

Ensuring the development of a reasonable and appropriate executive compensation package.

Intermediate Sanctions Review

Intermediate Sanctions

Intermediate Sanctions regulations were adopted by the Internal Revenue Service in 1996 to ensure the total compensative received by an individual working within a nonprofit organization is reasonable in relation to the market and does not constitute an excess benefit transaction.

Section 4958 of the IRS Code addresses excessive benefit transactions for nonprofit executives in 501(c)3 and 501(c)4 organizations. The definition of an excessive benefit transaction is when the value of the benefit to the executive (consisting of base pay, incentive or bonus pay, standard and supplemental benefits and perquisites) exceeds the value of the services provided to the organization.

The IRS requires reporting of compensation to officers and key executives known as “Disqualified Persons”.

  • “Disqualified Persons” are those executives who exercise substantial influence over the affairs of the organization, such as those supervising the management, administration or operations of the organization.
  • Chief Executive Officers are automatically included as “Disqualified Persons”.
  • Family members of “Disqualified Persons” employed by the organization are also considered as “Disqualified Persons” and subject to regulation.
Understanding the Process

JER HR Group is a Specialist in Intermediate Sanctions Review

Having conducted hundreds of Intermediate Sanctions reviews for our clients nationwide, we have a defined process that ensures an in-depth analysis with reliability and transparency.

  1. Collaborate with Board of Directors and/or Compensation Committee to understand the current Executive Compensation strategy and any compensation issues.
  2. Determine special skills, abilities and unique qualifications that may affect how an executive’s compensation package should be positioned in relation to the competitive market.
  3. Conduct an in-depth compensation analysis and provide an independent, expert opinion as to whether or not an executive’s total compensation is reasonable and complies with regulatory requirements.
  4. Evaluate how components of compensation under consideration may affect compliance with IRS guidelines.
  5. Provide guidance to the Board of Directors and/or Compensation Committee in establishing governance practices that will assist in minimizing liability under IRS guidelines.

Understanding the Process

Our Intermediate Sanctions Review process includes:

  • Conducting interviews with the individual executive(s) being reviewed to better understand their roles and responsibilities within the organization, and special skills.
  • Defining appropriate comparators within the market, including direct peer organizations.
  • Conducting a total compensation analysis to determine how each executive’s compensation compares to the market.
  • Preparing a report outlining the methodology, findings and recommendations, including our opinion on the reasonableness of current or proposed compensation.
Making a Difference

The Outcome: Making a Difference

JER HR Group provides advice and guidance to the Board of Directors and/or Compensation Committee to ensure the development of a reasonable and appropriate Executive Compensation package that complies with Intermediate Sanctions guidelines established under Section 4958 of the Internal Revenue Code.