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All good things must come to an end \u2014 including the tenure of a respected founder or executive. Just make sure that the departure of your not-for-profit\u2019s leader remains smooth throughout the exit and transition process. An exit agreement may help.<\/p>\n
Compensation and a continuing relationship <\/strong><\/p>\n Exit agreements are legal documents, usually developed by a nonprofit\u2019s board of directors, which detail the terms of a leader\u2019s departure. Unlike separation agreements \u2014 which generally protect employers from lawsuits or competition \u2014 exit agreements deal with compensation and the employee\u2019s continuing relationship with the nonprofit.<\/p>\n Let\u2019s look at an example: The founder of an arts organization initially accepted only a modest salary and has for years been drastically underpaid relative to other nonprofit executives. What\u2019s more, she\u2019s received little in the way of retirement benefits. When she announces her departure, her nonprofit\u2019s board decides to use an exit agreement to compensate her for her hard work in making the organization a success. Generally, this is known as a \u201ccatch-up\u201d agreement. The financial award acknowledges that the executive\u2019s salary has been lower than it should have been for a long period or that the organization\u2019s retirement contributions have been minimal or nonexistent.<\/p>\n \u201cStay\u201d agreements are also common. A nonprofit\u2019s executive director might be eager to retire, yet his board wants him to stay on in some capacity because his knowledge and connections will be critical for an upcoming capital campaign. The board includes \u201cstay\u201d incentives for a specific time period in the exit agreement.<\/p>\n Exit agreements can also be used to award a one-time honorarium. Even if a leader has been adequately compensated, a board may want to honor the executive\u2019s extraordinary service on the way\u00a0out.<\/p>\n Avoid possible pitfalls <\/strong><\/p>\n Usually, nonprofit boards approve exit compensation because they believe it\u2019s \u201cthe right thing to do.\u201d But even if your nonprofit can afford to compensate a former employee right now, it may not always be in a position to do so. You can help ensure your organization has the financial resources to make a generous offer to your departing executive by awarding a lump-sum amount. However, if you decide to extend compensation payments over a period of time, make sure the agreement specifies their source. It also should provide for discontinuation of payments if they jeopardize your charitable mission.<\/p>\n Also look into the possibility that compensating a departing leader could put your organization in danger of violating private inurement rules. These rules prohibit certain transfers of assets (particularly \u201cexcessive\u201d compensation) from nonprofits to insiders. If the IRS deems such compensation unreasonable, it could impose fines and penalties on your nonprofit and<\/em> on individual board members who approved the compensation package. In a worst-case scenario, your tax-exempt status could be revoked.<\/p>\n In addition, consider how your nonprofit\u2019s stakeholders might react when they hear about the package you\u2019re offering a departing executive. They may feel it\u2019s excessive or unnecessary and that your board\u2019s actions are suspect. You\u2019ll need to report any financial compensation on your nonprofit\u2019s annual Form\u00a0990. To protect against accusations of improper actions, make sure your board meeting minutes record discussions about the exit agreement and justifications for any compensation offered.<\/p>\n In the event of a breach<\/strong><\/p>\n Finally, even with the best intentions it\u2019s possible for an exit agreement to be breached. Check your organization\u2019s liability insurance policy and talk to an attorney to learn about any protection. And contact us to discuss whether your nonprofit has the financial resources to offer a departing leader compensation.<\/p>\n \u00a9 2024<\/em><\/p>\n <\/body> All good things must come to an end \u2014 including the tenure of a respected founder or executive. Just make sure that the departure of your not-for-profit\u2019s leader remains smooth throughout the exit and transition process. An exit agreement may help. Compensation and a continuing relationship Exit agreements are legal documents, usually developed by a […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,10,15],"tags":[8,11,12],"class_list":["post-17164","post","type-post","status-publish","format-standard","hentry","category-articles","category-news","category-not-for-profit","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17164"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17164\/revisions"}],"predecessor-version":[{"id":17165,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17164\/revisions\/17165"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17164"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17164"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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