We don’t have a “mailbag,” but I do watch the search terms that lead people to this blog. Last week, I saw one that looked like this: “should we warn people their pay is in the 990.” That got me thinking that beyond the obvious YES!!! it might be worth explaining what it all means to be listed in the Form 990, and what people should expect when they find themselves listed there.
First of all, there are a number of ways an individual may find their compensation in an IRS Form 990. Without going into a lot of detail, your name may appear in the 990 if you are a Director (or Trustee, or whatever Board members are called in your organization), an Officer, a “key employee” or a “highly compensated employee.” For some of these categories, it doesn’t even matter how much you earn, or if you earn anything at all. People in some jobs must be listed regardless of whether they fit a category, like the CEO and the top accounting or finance person.
If you’re listed in the table in Section VII, your last year’s total W-2 income will be displayed, along with the reported income from related organizations, and the estimated value of non-reported income from the organization and related organizations. Certain individuals will then have further disclosure in Schedule J. This may actually be better for employees who have high W-2 numbers from non-recurring events. That is because Schedule J goes into more detail — the W-2 is split into salary, bonus, and other reportable compensation. Of course, there is also additional information laid out -retirement plan contributions and non-taxable benefits. Recognize that most intrepid users of Form 990s are going to add all of those together for their own measure of “total compensation” — which may be significantly more than an employee actually sees enter his or her bank account.
Most people don’t think that the public has a right to know what they are paid — but if you work for a non-profit organization required to file Form 990, your right to privacy is trumped by the right of the public to know how non-profits spend their money. It can come as a shock to find out your pay is going to be out there — so any executive, senior manager or highly paid professional (e.g., medical providers) should be informed before they are even hired that their pay may be listed in the Form 990. Don’t assume that they will know that already; a physician in private practice will likely have no idea that some of their colleagues compensation is reported, nor will most non-finance executives, unless they’ve worked for a non-profit before. Make sure that every individual who is going to be listed on the 990 knows they will be listed, and knows what the disclosure will show, before the 990 is filed.
Beyond informing directors and employees that their compensation is going to be disclosed, consider providing them with information on how their compensation is determined. In a previous post, I described a sort of summary plan description, complete with FAQs, that could be handed to a reporter investigating your compensation program. It couldn’t hurt to give a copy of that handout to individuals who will be listed in the 990; you never know who the reporter is going to call, or whether a neighbor might be looking at the 990 and knock on the door and say “why do you make so much?”
Being listed in the 990 isn’t bad, it just means you may have some explaining to do — and assume at least one of your friends is going to ask you to pick up the tab next time you go out! For more information on CEO, executive, provider and staff compensation, contact me at email@example.com, or visit our website, at www.mercesconsulting.com,