Your nonprofit has just identified a capable and promising executive candidate, perhaps for executive director, chief financial officer, or another high-level position within the organization. And the candidate has accepted! What should be negotiated and worked out for that person’s employment? How can the board promote a positive working relationship with clarity and optimal opportunity for success? The following key areas warrant attentiveness at the beginning of this critical engagement, to promote a healthy, effective, and legally compliant employment relationship.
1. Ensure a Consistent Vision, Mission, and/or Statement of Faith
When the nonprofit organization espouses a particular vision, mission, or religious identity, as reflected in its initial corporate documents, so should the leadership. It is therefore highly advisable to discuss these key matters before extending an offer of employment. For example, if the nonprofit’s mission is to promote the health benefits of vegan eating, then it is reasonable to expect potential executive candidates to likewise affirm such values. Similarly, a Christian church may require that its leadership be Christians. Note that staffing requirements may implicate both potential discrimination prohibitions and religious liberty protections, so due regard should be given to applicable legal constraints.
2. Define Employment Terms
Identify the employment terms in writing. This could be done through an employment confirmation letter that addresses compensation, benefits, start date, and employee status. Alternatively, the written document could be an offer letter, to become a formal agreement upon the recipient’s signature. Another option is to use a formal employment contract, although that approach is not too common. Regardless of the type of written document used, employment is typically specified as “at will,” terminable by either party with or without “cause.” (That is also the legal default in most states, if such matter is not affirmatively identified.) If an employment term is specified as for a time period (e.g., one year), make sure to identify what constitutes cause – such as employee misconduct or financial exigency.
3. Set Specific Job Expectations
What will be expected of this executive employee? Identify the scope of expected job responsibilities in the written agreement or offer letter, in general terms. Even better, use an attached written job description that provides a detailed list of expected responsibilities such as work hours, anticipated travel, fundraising expectations, board engagement, staff supervision and program management.
4. Identify Intellectual Property Ownership and Usage
If the executive staff member has already authored books, written music, or developed other creative works, or is expected to do so, ownership of intellectual property and usage should be addressed. The legal default rule is that works “made for hire” for an employer are owned by the employer. But it may be helpful to expressly state that rule to promote the employer’s and the employee’s mutual understanding and expectations. Alternatively, the parties may wish to provide that creative works are to be owned by the employee. In that case, however, the employer should have a “license” to use the works without restriction or cost, since the employee will produce the works on the employer’s proverbial dime. Additionally, the parties may wish to exclude certain works, such as if the employee engages in outside creative endeavors beyond his or her nonprofit employment.
5. Address Confidentiality and Non-Disclosure
Depending on the nonprofit, it may be quite important to identify confidentiality and non-disclosure provisions in writing. Generally speaking, nonprofit executives owe a fiduciary duty of loyalty, which encompasses confidentiality regarding donor, financial, or sensitive information, as well as a fiduciary duty of care to guard such information well. More specifically, non-disclosure agreement language may be important, again to promote mutual understanding. The right time to put such expectations in writing, with legally binding effect, is at the commencement of the executive’s employment.
6. Consider Employment Benefits
What health benefits should you provide, if any? Are benefits just for this employee, or for all the employees too? These are important questions, with a myriad of potential options depending on employer goals, financial capacity, and legal considerations. Two new “health reimbursement arrangement” options just became available in early 2020, which may be particularly well suited for smaller employers. For more information, see our blog here. Similar considerations apply for retirement benefits, such as through an IRA or Section 403b plan. A benefits consultant should be engaged for anything beyond very basic benefits.
7. Address Executive’s Board Involvement
Nonprofit executives generally work in close relationship with the Board of Directors, accountable to the Board and responsible for carrying out the Board’s directives. This is especially true for executive directors, with a positive relationship essential for a strong organization. Note too that the nonprofit’s bylaws may prescribe that an executive director (or other executive) will serve “ex officio” on the Board – i.e., by virtue of his or her employment – and either as a voting or non-voting director. The bylaws may identify the executive director as an officer too. Leadership-related responsibilities should be communicated clearly, and preferably in any written employment document too. Note too that if the nonprofit leadership does not want to have a new executive employee serve as a director and/or officer of the Board, then the bylaws may need to be changed!
8. Avoid Conflicts of Interest
Nonprofits that fail to monitor and manage conflicts of interest run a high risk of losing public confidence, attracting the scrutiny of watchdog groups, and possibly inviting government inquiries. Consequently, all nonprofits should have a written conflict of interest policy that covers its executive staff and requires annual and other disclosures of any such conflicts. A nonprofit conflict may be monetary (e.g., the executive may not vote on his or her own salary or benefits, even if on the board) or relational (e.g., the executive’s brother is on the board, so he should not participate in any job evaluation for the executive). In light of such considerations, the executive should complete and sign the organization’s conflict of interest disclosure statement, as well as fully understand his or her duty to disclose any conflicts. If these matters have not yet been addressed, they may be covered through a board training session.
9. Obtain Board Approval
The Board should approve the executive hire as part of its governance responsibility, both for the hiring decision itself and the specific employment terms. The Board may approve the hire at a regular or special board meeting, and perhaps through recommendation of a committee or other executive staff member. The Board’s decision to hire should be properly documented in meeting minutes. Use of a “unanimous written consent” resolution may be helpful in the process, such as for the board to approve final details of the employment arrangement without convening a meeting.
10. Maintain Other Good Employment Protocols
Depending on the nonprofit’s size, it may be helpful to have an employee handbook in place too. A good employee handbook typically includes provisions about the nonprofit mission, equal employment opportunity, anti-harassment, employee classifications, scheduling, pay, leave and other benefits, technology and communications, and employee standards of conduct. The new executive’s employment documents should dovetail with and perhaps augment the handbook information.
In summary, follow through on the nonprofit mission, make expectations clear, engage well between board and executives, and stay on the high road of integrity. Through these best practices, nonprofits and their executive employees should be well poised for effective and successful working relationships!
