INSIGHT

Compensation Studies for Nonprofit Organizations: Building a Sustainable Pay Strategy 

Monica Frame • February 26, 2026

Services: Compensation Consulting Industries: Nonprofit

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Your development director just gave notice. She’s leaving for a position that pays 20% more than what you offer. Meanwhile, your finance committee is questioning whether your executive salaries align with sector norms, and your newest board member keeps asking how you determine what people should earn. These scenarios point to a common challenge: without clear market data, your organization is making compensation decisions in the dark.  

This article examines how compensation studies help you create fair, competitive pay structures that support your mission and satisfy stakeholders.   

The Real Cost of Guessing at Compensation 

Nonprofits often base salaries on employee or candidate preferences, historical pay, perceived affordability, or the previous salary for a role.  This approach creates problems that compound over time:  

• You might underpay critical positions and lose talented staff to organizations that use market data.  
• You could overpay certain roles and strain your budget unnecessarily.  
• You could have internal inequities where people doing similar work receive vastly different compensation.   

Without objective benchmarks, you also lack the evidence your board needs to fulfill their oversight responsibilities. When donors question your spending or the IRS reviews your Form 990, you’re left defending decisions based on institutional memory rather than documented research. This vulnerability puts your organization’s reputation and tax-exempt status at risk. 

What Market Data Reveals About Your Pay Practices 

A compensation study brings clarity to an area where nonprofits often operate on assumptions. The process starts by examining your current roles and how you’ve structured them. You’ll document what each position actually does, not just what the job description says. This step alone often reveals that responsibilities have evolved significantly since you last evaluated the role. 

Next, you’ll compare your positions against reliable market data from organizations similar to yours. The comparison isn’t just about matching job titles. You need to account for your budget size, geographic location, service area, and organizational complexity. A program director at a $2 million local food bank has different responsibilities than someone with the same title at a $20 million statewide advocacy organization. 

The study examines total compensation, not just base salary. Your retirement contributions, health insurance, paid time off, professional development support, and flexible work arrangements all factor into whether your overall package can compete for talent. Sometimes organizations discover they’re paying below-market salaries but offering above-market benefits, or vice versa. 

Strategic Benefits Beyond Knowing Market Rates 

Understanding where you stand in the market is valuable, but the real power of a compensation study lies in what you do with that information. You can identify which positions pose the highest retention risk because your pay lags significantly behind comparable organizations. This allows you to prioritize salary adjustments where they’ll have the greatest impact on keeping your team intact. 

The data helps you plan budgets with confidence. Instead of applying across-the-board percentage increases that may not address actual market gaps, you can target resources where they’re needed most. You might discover that your program staff are paid competitively, but your administrative roles are 15% below market. That insight changes how you allocate limited funds. 

Your study also provides the foundation for developing salary ranges and compensation policies. When you post new positions, you’ll be able to post salary ranges confidently and know what to offer. When staff ask about advancement opportunities, you can show them a clear path. This structure reduces the subjective decision-making that often leads to pay inequities. 

Addressing the Compliance Dimension 

For organizations with highly compensated employees, compensation studies serve a specific legal function. The IRS presumes that executive compensation is reasonable when you base it on appropriate comparability data, obtain approval from an independent board or committee, and document the decision contemporaneously. A properly conducted compensation study satisfies the comparability data requirement. 

This protection matters because the penalties for excess benefit transactions are severe. The IRS can impose excise taxes on the individual who received unreasonable compensation and on board members who approved it. Your compensation study creates a documented record that you followed a deliberate process to ensure pay was appropriate. 

It’s worth noting that executive compensation studies (particularly for Executive Directors and C-suite roles) are typically conducted separately from organization-wide staff compensation studies. This distinction exists for good reason – at nonprofits, it is the board of directors, not management, that sets the top executive’s salary. An executive compensation study is designed specifically to support that board-level decision-making process, providing the comparability data and documentation the board needs to demonstrate it acted responsibly and in accordance with IRS requirements. 

Even if your organization doesn’t have employees subject to intermediate sanctions rules, the study demonstrates sound governance. Form 990 asks whether you used comparability data when setting compensation for your top officials. Answering “yes” and having documentation to support it sends a strong signal to regulators, donors, and the public. 

Whether your organization needs a full staff compensation study, an executive compensation study, or both, it’s important to work with a consultant who has specific experience in the type of study you’re conducting. BPM brings that depth of experience to both, helping nonprofits build pay strategies that are competitive, compliant, and clearly defensible. 

Choosing Your Approach and Data Sources 

You have several options for conducting a compensation study.  

Published Salary Surveys 

Some organizations use published salary surveys specific to the nonprofit sector. These surveys typically organize data by role type, organization budget, and region. The challenge is finding surveys that include enough organizations similar to yours to provide meaningful comparisons. 

Form 990 Data 

Another approach uses Form 990 data from peer organizations. Since most nonprofits must disclose compensation for their top employees publicly, you can research what comparable organizations pay. This method gives you real data from actual peers, though it requires significant time to gather and analyze the information correctly. Additionally, the specifics on how annual compensation is divided between base salary and bonus isn’t outlined on 990’s, which only cover director and above roles. That means, a significant portion of your employees may be excluded 

Third-party Compensation Consultants 

Many organizations engage consultants who specialize in nonprofit compensation. These professionals have access to multiple data sources, understand how to match roles appropriately, and can provide an independent perspective that strengthens the credibility of your findings. The investment typically pays for itself through better decision-making and reduced compliance risk. 

Whichever approach you choose, you’ll need to define your peer group thoughtfully. Geographic proximity matters for most positions. Budget size often serves as a good proxy for organizational complexity. Mission alignment can be relevant if you’re competing for specialized talent within a particular subsector. 

Implementing Your Findings Without Breaking the Budget 

A compensation study will likely reveal that some positions are underpaid. The question becomes how to address gaps when you can’t afford to bring everyone to market immediately. Start by prioritizing positions where below market pay creates the highest risk or biggest impact on your mission delivery. 

Consider a phased approach that moves positions toward market over two or three years. This strategy acknowledges the problem while keeping costs manageable. You might also evaluate whether you can restructure benefits or add non-monetary rewards that employees value highly but cost less than salary increases. 

Sometimes the study reveals you’re overpaying certain positions relative to the market. Before reducing anyone’s compensation, consider the following:  

• Whether the role has unique responsibilities that justify higher pay 
• Whether the person’s individual qualifications exceed typical market candidates 
• Whether geographic factors make your market different.  

When you do need to adjust compensation downward, grandfathering current employees while setting new ranges for future hires often provides the smoothest transition.  

Working with BPM  

Your nonprofit deserves compensation practices grounded in solid data rather than guesswork. BPM helps organizations like yours conduct thorough compensation studies that provide the market intelligence you need to make informed decisions. We’ll work with you to identify appropriate peer groups, analyze relevant data sources, and present findings that your board can act on with confidence. 

Our approach balances market competitiveness with budget realities while ensuring you meet regulatory requirements. To discuss how a compensation study can strengthen your organization’s ability to attract, retain, and fairly compensate the talent your mission requires, contact us.