Is Our Executive Director Overpaid? How a Board Actually Answers That

Every board asks this eventually — after a donor complaint, a news story, a merger conversation, or simply a conscientious committee chair. It is the right question asked in a form the law cannot answer. Federal tax law does not define "overpaid"; it defines unreasonable, and the regulations under IRC §4958 give reasonableness a working standard: the amount that would ordinarily be paid for like services by like enterprises under like circumstances (Treas. Reg. §53.4958-4(b)). That phrase is a method. This page walks through it. It will not hand you a number — deliberately, and we will be plain at the end about why.

Step 1 — Define "like enterprises" before looking at any figure

The comparison cohort comes first, because it decides the answer. Three dimensions matter more than anything else, and in our analysis of the filings, budget size dominates: organizations of similar budget size, similar mission field, and comparable labor market. A $40M hospital system and a $700K food pantry are not "like enterprises" even if both leaders carry the title Executive Director. A cohort chosen after seeing the numbers is advocacy, not comparability — pick it first and write down why.

Step 2 — Compare the right number

Use reported total compensation — Schedule J column (E) — rather than base salary, and use it consistently across every comparable. Base-only comparisons flatter organizations that pay through retirement contributions and incentives. What each Schedule J column captures is worth ten minutes of any committee's time before it reads a single peer filing.

Step 3 — State the years honestly

990 data arrives on a lag: a return can be filed nearly a year and a half after the calendar year it reports, so the newest year of any 990-derived dataset is incomplete. A defensible file says "filings from 2021–2025" and, where pay levels have moved, notes the vintage — it does not pretend to a current-year market rate that no public source actually contains.

Step 4 — Enough comparables, independently reviewed, written down

The §4958 rebuttable presumption of reasonableness rests on three legs (Treas. Reg. §53.4958-6): the pay was approved in advance by an independent body; that body relied on appropriate comparability data; and it documented the basis for its decision contemporaneously. For organizations with annual gross receipts under $1 million, the regulations provide a safe harbor: data on compensation paid by three comparable organizations in similar communities for similar services suffices (Treas. Reg. §53.4958-6(c)(2)(ii)). Larger organizations need more, and the data must genuinely match the cohort defined in Step 1 — what counts as appropriate comparability data is its own explainer.

Step 5 — Read the answer as a range, not a verdict

Illustrative only — every figure in this paragraph is invented. Suppose a synthetic organization, Riverbend Youth Services ($5M budget, human services), assembles its cohort and finds peer totals running from $100,000 to $160,000, clustering near $135,000, while its own executive director earns $150,000. (The figures are stylized for arithmetic, not a market read for any real cohort.) That is not "overpaid" — it is above median, within the observed range, and the board's job is to decide and document why: longer tenure, a turnaround, dual roles, a deliberate retention strategy. §4958 penalizes unreasonable pay and undocumented process, not an above-median decision a board can explain. The documentation explainer covers what the minutes should contain.

What this page has not given you — on purpose

A benchmark figure for your organization. Publishing free executive-director medians at fine granularity is precisely what makes casual, indefensible comparisons easy, and a single number cannot satisfy the comparability standard anyway. The figure for your role, sector, state and budget band — with the matched peer organizations named, and the documentation a committee can file — is what the CauseComp Executive tool sells, and what it costs is a fraction of a consulting study. Published medians for other officer roles, at coarser cuts, are free on the salary benchmark pages.