Plain-English answer: Being a founder does not require lifelong unpaid labor. Compensation should be for services actually performed, comparable to similar roles, approved by people without a conflict, and documented.
The four safeguards
- Define the job. Use a written role description and real responsibilities.
- Use comparability data. Review pay for similar work at organizations of similar size and location.
- Use independent approval. The person being paid should not vote on their own compensation.
- Document the decision. Board minutes should record who participated, the information reviewed, and the approval.
Salary is not ownership
A nonprofit has no owners or shareholders. Reasonable wages reimburse work; leftover funds remain with the organization and must further its exempt purposes.
Warning signs
- Founder sets their own pay without board review
- Pay is far above comparable positions
- Personal expenses are charged to the organization
- Bonuses are tied to money raised without appropriate controls
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Start the intake âOfficial source
IRS: Executive compensation issues. State law and individual facts can change the answer; consider professional review.