Leading a nonprofit organization is a tremendous responsibility, both for boards and executives. Boards that don’t pay attention to executive evaluation and compensation are opening the organization up to serious risk.

Celebrating accomplishments and sharing honest and candid feedback about opportunities for growth is essential to the success of the executive and the organization. Similarly, ensuring that the organization is adequately — but not excessively — compensating the executive is critical to leadership sustainability. Boards that don’t pay attention to executive evaluation and compensation are opening the organization up to serious risk.

To ensure that boards are setting clear expectations for executive performance and doing their due diligence on executive compensation, BoardSource recommends the following:

  • A formal, written review of performance each and every year. This does two things: It gives the executive the opportunity to report on his or her progress against goals, and it invites each board member to reflect on the executive’s overall performance.
  • An annual goal-setting process. As a part of the review process, the executive and the board should discuss and formalize goals for performance for the next year.
  • Regular review of compensation. While some organizations may not review the executive compensation package on an annual basis, it’s important that this be done at least every few years, and that the board and executive have a shared understanding of the frequency and process for this review.
  • Use of external salary benchmarks. It’s essential that boards have an understanding of the market as they make decisions on compensation.
  • Full board approval of the compensation package. While it’s likely that the work of researching and recommending the compensation package will be delegated to a committee, it’s important that the full board be informed of the recommendation and have an opportunity to discuss and vote on it.

Read the full article about executive evaluation and compensation at BoardSource.