Compensation Policies are gaining attention because the new 990 asks whether boards have a process in place to approve executive compensation. The IRS recently issued Draft Instructions for the New 990 that spell out the three (3) steps boards (or compensation committees) are expected to take in order to approve compensation for key staff and officers, including board members if they are considered “top management.” According to the draft instructions (see draft instructions for Section IV), boards are expected to:
- Review and approve compensation in accordance with conflict of interest policies;
- Use comparability data for “similarly qualified persons in functionally comparable positions at similarly situated organizations;” and
- Keep contemporaneous records of the decision-making and deliberations of the board (or compensation committee).
The IRS is accepting comments from the public on the draft instructions through June 1st, 2008.