How to Conduct a Nonprofit Compensation Study (Without Hiring a Consultant)

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Compensation consultants are great if you can afford them. Most small nonprofits can’t. A full compensation study from a reputable firm runs $5,000 to $25,000 depending on the size of your organization and the number of positions being benchmarked. For a nonprofit with a $1.5 million budget, that’s a meaningful line item.

Here’s the good news: you can conduct a solid compensation study yourself. It takes time, discipline, and access to the right data sources – but it doesn’t require a consultant. What it does require is a systematic approach. You can’t just Google a few salaries and call it a study. The IRS, your board, and your staff all deserve better than that.

This guide walks you through the entire process step by step, from defining your scope to presenting findings to the board.

Step 1: Define Your Scope and Goals

Before you pull any data, get clear on what you’re trying to accomplish. A compensation study can serve several purposes, and your scope affects everything else.

Are you benchmarking one role or all roles? If you’re hiring a new ED and need to set compensation, you might only need to study that one position. If you haven’t reviewed your entire pay structure in five years, you need a comprehensive study. Most organizations benefit from studying all positions but focusing the deepest analysis on leadership roles and positions with high turnover.

What decisions will the study inform? Annual raises? A new salary structure? An executive compensation review for the board? Knowing the end use shapes how rigorous your methodology needs to be. For board-level executive compensation decisions, you need formal comparability data that satisfies the IRS rebuttable presumption standard. For internal planning, you can be somewhat less formal – but still systematic.

What’s your timeline? A comprehensive study of 15-20 positions takes 20-40 hours spread over 4-6 weeks. A single-position study can be done in a week. Set realistic expectations with whoever is waiting for the results.

Step 2: Create Your Position Inventory

List every position in your organization with the following information:

• Job title
• Department or program area
• FLSA classification (exempt or non-exempt) – if you’re not sure, flag it for review. Our guide on job classifications and pay ranges covers this in detail
• Current salary or hourly rate
• FTE status (full-time, part-time, the actual percentage)
• Number of direct reports
• Budget or revenue responsibility
• Key responsibilities (3-5 bullet points, not the full job description)
• Required qualifications (degree, certifications, years of experience)

This inventory becomes your matching guide. When you pull external salary data, you’ll match against actual job responsibilities – not just titles. A “Program Coordinator” at your organization might be equivalent to a “Program Manager” at another, and you need to know that before you start comparing numbers.

Step 3: Define Your Comparable Organizations

This is the most important step in the entire process, and it’s where most DIY studies go wrong. Your comparable organizations need to genuinely resemble yours. The IRS looks at several factors when evaluating comparability:

Budget Size

This is the primary matching criterion. If your budget is $2 million, your comparables should generally fall between $1 million and $4 million. Going broader than that introduces too much noise. A $500,000 organization and a $10 million organization operate in fundamentally different ways, even if they do similar work.

Geographic Region

Compensation varies significantly by geography. A development director in Boston and one in Boise are not interchangeable from a salary perspective, even if they do identical work. Use comparables from the same metro area or region when possible. If you’re in a mid-sized city and can’t find enough local comparables, expand to similar-sized cities in your region – not to New York or San Francisco.

Mission/Subsector

Human services organizations tend to pay less than healthcare nonprofits. Arts and education fall somewhere in between. Environmental and advocacy organizations have their own patterns. Compare within your subsector when you can, and note when you’re pulling cross-sector data.

Organizational Complexity

A single-site organization with 15 employees is different from a multi-site organization with 15 employees across three locations. Factor in complexity when selecting comparables.

How many comparables do you need? For the IRS rebuttable presumption, you want at least 5 comparable data points per position. For a broader study, aim for 5-10. More is better, but quality matters more than quantity. Five strong comparables beat twenty weak ones.

Step 4: Gather Your Data

Now the actual research begins. You’ll want data from multiple source types to strengthen your study.

Source 1: Form 990 Data

Every 501(c)(3) that files a full Form 990 reports compensation for officers, directors, key employees, and highest-compensated employees. This data is publicly available through ProPublica Nonprofit Explorer, Candid, and aggregation tools like ExemptPay.

The strengths of 990 data: it’s verified (reported to the IRS), it includes total compensation including benefits, and it’s organization-specific (you can see exactly what comparable Org X pays their ED).

The limitations: it only covers the highest-paid employees, it’s 1-2 years old, and it doesn’t include job descriptions or scope details. You’ll need to infer role scope from the organization’s size and structure.

To use 990 data effectively: identify 10-15 comparable organizations using the criteria above, then pull compensation data for the positions you’re studying. Record the organization name, budget size, geographic location, position title, and all three compensation columns (base, bonus/other reportable, and other compensation).

Source 2: Salary Surveys

Published salary surveys provide aggregate data broken down by role, budget size, geography, and other factors. Key surveys for nonprofits include:

• State nonprofit association salary surveys (check your state – many publish these annually)
• Nonprofit HR’s annual compensation survey
• Economic Research Institute data
• Regional United Way compensation studies

Survey data is pre-analyzed and easy to use, but it’s aggregated – you can’t see individual organizations. It works best as a complement to 990 data, not a replacement.

Source 3: BLS and Government Data

The Bureau of Labor Statistics’ Occupational Employment and Wage Statistics provides median wages by occupation and metro area. This is free, current, and comprehensive – but it covers all sectors, not just nonprofits. Use it as a reality check against your nonprofit-specific sources.

Source 4: Job Postings

Current job postings with salary ranges tell you what the market is offering right now. Check Indeed, LinkedIn, Idealist, and your state nonprofit association job board. This is anecdotal rather than systematic, but it captures current market conditions that older survey data might miss.

Step 5: Organize and Analyze

Create a spreadsheet for each position (or a master spreadsheet with tabs). For each position, record:

• Source (990 data, survey, BLS, job posting)
• Organization name (for 990 data) or survey name
• Budget size of the comparable organization
• Geographic location
• Base compensation
• Total compensation (including benefits)
• Notes on scope comparability

Once you have your data assembled, calculate the following for each position:

• 25th percentile: The point at which 25% of comparables earn less
• Median (50th percentile): The middle value
• 75th percentile: The point at which 75% of comparables earn less
• Range: The minimum and maximum in your data set

Then plot where your current salary falls. Is your ED at the 30th percentile? The 65th? Below the 25th? This is the core finding of your study.

A tip: if one or two data points are extreme outliers (much higher or lower than everything else), note them but consider excluding them from your percentile calculations. An outlier can skew your results, especially with small sample sizes.

Step 6: Develop Recommendations

Data alone isn’t useful. Your study needs to result in actionable recommendations. For each position, your recommendation should address:

Is the current salary competitive? If you’re targeting the 50th percentile and your ED is currently at the 35th percentile, that’s a gap. Quantify it in dollars.

What adjustment is needed? Be specific. “The ED’s base salary should be increased from $95,000 to $108,000 to reach the 50th percentile of comparable organizations.” Don’t be vague.

What’s the budget impact? Calculate the total cost of all recommended adjustments. If bringing everyone to your target percentile would cost $45,000, the board needs to know that. If you can’t afford everything at once, propose a phased approach – close the biggest gaps first, bring everyone to target over 2-3 years.

What’s the risk of inaction? For positions significantly below market, estimate the cost of turnover if the incumbent leaves. As we discuss in our salary benchmarking guide, replacing a mid-level employee costs 50-75% of their annual salary. That number often makes the case for a raise more compelling than any percentile ranking.

Step 7: Present to the Board

Your board presentation should be clear, concise, and action-oriented. Here’s a structure that works:

Executive summary (1 page): What you did, what you found, and what you recommend. Lead with the key finding: “Our analysis of 12 comparable organizations shows that 4 of our 8 positions are compensated below the 25th percentile, creating significant retention risk.”

Methodology (1 page): How you selected comparables, what data sources you used, and any limitations. This is critical for the IRS reasonable compensation standard – your methodology needs to be documented and defensible.

Position-by-position findings (1 page per position or a summary table): Current salary, market range, percentile ranking, recommended adjustment.

Budget impact and implementation plan (1 page): Total cost, phasing, and funding strategy.

Keep the full data set available as an appendix, but don’t overwhelm the board with spreadsheets. They need to understand the findings and make a decision, not audit your methodology.

Step 8: Document Everything

This step is non-negotiable, especially for executive compensation. Your documentation should include:

• The date the study was conducted
• Who conducted it
• The list of comparable organizations and how they were selected
• All data sources used
• The raw data (keep the spreadsheets)
• The analysis and methodology
• The recommendations
• Board meeting minutes showing presentation, discussion, and vote
• The final approved compensation decisions

Store this as a permanent file. You may need it for IRS inquiries, donor questions, or future studies. Most organizations keep compensation study documentation for at least 7 years.

When You Actually Do Need a Consultant

A DIY study works well for most small and mid-sized nonprofits. But there are situations where professional help is worth the cost:

• High-profile executive transitions: If you’re hiring a CEO for a $10 million organization, a professional compensation study adds credibility to the process and protects the board
• Litigation risk: If there are potential pay equity issues (gender, race) or FLSA classification disputes, a consultant provides expert analysis and documentation that may be important if legal questions arise
• Complex organizational structures: If you have multiple entities, revenue-sharing arrangements, or unusual compensation structures (physician groups, commissioned fundraisers), the complexity may exceed what you can analyze internally
• Board credibility needs: Sometimes the board wants an independent third party to validate findings, especially if the study was initiated by the person whose compensation is being reviewed. An independent consultant eliminates any appearance of self-dealing
• You’ve never done this before: If your organization has never had a compensation study and you’re starting from scratch with no salary structure, no job classifications, and no benchmarking history, a consultant can set up the framework that you maintain yourself going forward

If you do hire a consultant, expect to pay $5,000 to $15,000 for a study covering 10-20 positions at a small nonprofit. Get proposals from at least two firms, ask for nonprofit references, and make sure the deliverable includes documentation sufficient for the IRS rebuttable presumption standard.

Maintaining Your Study Over Time

A compensation study isn’t a one-time project. To stay current:

• Annual adjustments: Apply cost-of-living increases based on CPI data each year between full studies
• Full refresh every 2-3 years: Repeat the benchmarking process with fresh data
• Event-driven updates: New positions, significant organizational changes, or high turnover in specific roles all warrant immediate benchmarking
• Track your sources: Note when salary surveys are published so you can order the latest edition for your next refresh

The goal is to have compensation data that’s never more than 2-3 years old for any position. Fresh data means better decisions, and better decisions mean better retention, better morale, and better stewardship of donor dollars.