Documenting the Executive Director Performance Review in Board Minutes (2026)

Every year, Form 990 asks your nonprofit whether the board (or a designated committee) reviewed and approved the compensation of your top executives. Most boards say yes. Far fewer have the minutes to prove it.

This matters more than most organizations realize. When the IRS audits a nonprofit — or when a state attorney general investigates excess compensation — the first thing they request is board minutes documenting the review process. If your minutes are thin, vague, or missing, "yes" on the 990 becomes a liability rather than a clean answer.

Here's what to document, what to protect, and how to do it right.

Why the IRS Cares About Executive Compensation Reviews

Nonprofit organizations are prohibited from providing "private inurement" — using charitable assets to improperly benefit insiders. Excessive executive compensation is the most common form of private inurement enforcement action.

The IRS created the "rebuttable presumption of reasonableness" standard (under IRC Section 4958) to give nonprofits a safe harbor: if the board follows a specific review process, the compensation is presumed reasonable even if later challenged. That process requires:

1. Review and approval by an independent body (board or compensation committee with no conflict of interest)
2. Use of comparability data (what similar organizations pay for similar roles)
3. Documentation of the basis for the decision — recorded in minutes before the next board meeting

The third requirement is where most nonprofits fall short. The review happens, the decision is made, but the minutes don't capture the reasoning in enough detail to satisfy the safe harbor.

What the Minutes Must Document

Who Participated in the Review

• Names of all board/committee members who participated
• Any members who recused themselves due to conflict of interest (and why)
• Confirmation that the reviewing body had no financial interest in the outcome

If the executive director sits on the board (common in smaller nonprofits), they must recuse. Document that recusal explicitly. If they didn't recuse, you have a problem that documentation can't fix — but good documentation at least shows awareness.

The Comparability Data Reviewed

This is the element most boards skip, and it's the one the IRS cares most about. Document:

• What data sources were reviewed (salary surveys, peer organization 990s, compensation studies)
• The range of comparable compensation identified
• How the organization defines "comparable" (similar size, similar geography, similar mission/sector)
• Who obtained or prepared the data

You don't need to reproduce the entire salary survey in your minutes. But "the board reviewed market data" is not sufficient. Something like: "The committee reviewed compensation data from the 2025 Nonprofit Compensation Report (GuideStar/Candid) for executive directors of similar-sized human services organizations in the Southeast, reflecting a median total compensation of $[X] and a 75th percentile of $[X]" — that's the level of specificity that satisfies the safe harbor.

The Performance Review Itself

• The timeframe being evaluated (typically the prior fiscal year)
• How performance was assessed (written self-assessment, board survey, formal review meeting, etc.)
• Key areas reviewed (organizational performance, financial stewardship, strategic progress, leadership)
• Overall assessment (you don't need to share the rating in public minutes, but note that a review occurred and the general findings)

Performance review details are appropriate for executive session. The fact that a review occurred and its general outcome can be noted in a way that protects privacy while creating the required record.

The Compensation Decision

• Current total compensation package (salary, benefits, bonuses, deferred compensation)
• Proposed adjustment (if any) and the rationale
• How the proposed compensation compares to the market data reviewed
• The vote: exact compensation approved, roll call by name
• Effective date

This is the core of the rebuttable presumption documentation. The minutes must reflect that the decision was made by an independent body, based on comparability data, and recorded before the next board meeting.

Executive Session vs. Open Session

Performance reviews and compensation decisions are nearly always appropriate for executive session — they involve personnel matters and sensitive financial details. The standard approach:

• Open minutes: Note that the board convened in executive session to conduct the annual executive director performance review and compensation determination
• Executive session minutes: Capture the full detail — comparability data, performance assessment, compensation decision, vote

Executive session minutes are still board records. They should be complete. The fact that they're not shared publicly doesn't mean they can be vague.

One important note: the compensation decision itself — the dollar amount and effective date — is often a matter of public record for nonprofits filing Form 990, since Part VII of the 990 requires disclosure of compensation for officers and key employees above $100,000. Your minutes should be consistent with what's reported on the 990.

Timing: When Minutes Must Be Complete

The IRS rebuttable presumption standard requires the minutes to be prepared and approved "before the later of the next meeting of the authorized body or 60 days after the final action." This isn't aspirational — it's a hard deadline for the safe harbor to apply.

In practice, this means:

• If the compensation review happens at the March board meeting, the minutes must be approved no later than the May board meeting (or 60 days, whichever comes first)
• Draft minutes prepared promptly are much easier to get approved on schedule than minutes reconstructed months later
• This is one place where the minutes deadline has direct legal consequences

Sample Minutes Language

Here's language you can adapt for the executive session portion of your board minutes:

EXECUTIVE SESSION — EXECUTIVE DIRECTOR PERFORMANCE REVIEW AND COMPENSATION

The Board convened in executive session at [time]. [ED Name] was not present for this portion of the meeting.

Present: [Director names]
Recused: [Name], Executive Director (not present for this session)

PERFORMANCE REVIEW
The Board conducted the annual performance review of [ED Name] for the fiscal year ending [date]. The review was based on [written self-assessment / board member surveys / written evaluation prepared by Board Chair / other]. The Board assessed performance in the following areas: organizational mission advancement, financial stewardship, program outcomes, leadership and staff development, and stakeholder relationships. The Board's overall assessment was [positive / the ED met expectations in all key areas / other appropriate summary that doesn't identify private details].

COMPARABILITY DATA
The Compensation Committee presented compensation benchmarking data drawn from the following sources:
- [Source 1, e.g., "2025 Nonprofit Compensation Report (Candid/GuideStar), Human Services sector, organizations with annual budgets of $1M–$5M, [State/Region]"]
- [Source 2, e.g., "Comparable organization 990 filings (3 peer organizations identified by committee)"]

The data reflected a median total compensation of $[X] and a 75th percentile of $[X] for comparable roles.

COMPENSATION DECISION
Following review of performance and market data, on motion by [Director Name] and seconded by [Director Name], the Board voted to set [ED Name]'s total annual compensation as follows, effective [date]:

- Base salary: $[X]
- Benefits: [description or estimated value]
- [Other components if applicable]

Total compensation: $[X]

Vote: [Name] – Yes; [Name] – Yes; [Name] – Yes; [Name] – Abstained ([reason if applicable])

The Board Chair was directed to communicate this decision to [ED Name].

The Board returned to open session at [time].

Common Mistakes to Avoid

1. "The board reviewed and approved the ED's compensation" — full stop

This is the most common failure. It documents that a decision happened, not the process or basis. Useless for the safe harbor.

2. Not documenting the comparability data

The IRS specifically requires comparability data. "The board believes the compensation is reasonable" is not comparability data.

3. Including the ED in the deliberation

Even if the ED is a board member, they cannot participate in setting their own compensation. Document their absence or recusal clearly.

4. Missing the 60-day documentation deadline

Get the minutes drafted and approved promptly. This is one area where procrastination has direct legal consequences.

5. Inconsistency with Form 990

Whatever compensation is documented in your minutes should match what gets reported on the 990. Discrepancies create audit risk.

MinuteSmith for Sensitive Board Meetings

Executive director reviews involve careful language — you need enough detail for the IRS safe harbor without oversharing in a way that creates other risks. MinuteSmith helps by generating structured, appropriately detailed draft minutes that capture the required elements without turning a sensitive meeting into a public transcript.

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Bottom Line

The Form 990 question about executive compensation review is a one-word answer. The proof behind that answer is in your minutes. Make sure the proof is there — with the comparability data, the independent review process, and the vote documented in detail — and your organization has real protection. Without it, you have a checkbox and exposure.