The CEO of a national membership organization recently asked me a question about the disclosure of salary information. “What is common practice for disclosing staff salaries when budgeting? I want to maintain the confidentiality of staff but I assume we must share this information with at least some of the board members. Who normally sees salary information? The entire board? A finance or executive committee? The entire membership?”
The short answer is that typically both budget and financial statements show a line item for salaries and benefits with no further detail.
The board normally sees both the budget and the financial statements whereas the membership normally sees only the financials. So members would not see individual salaries – just a total, while board members and the finance committee might see the individual numbers.
Budget Preparation and Presentation
Budget preparation is generally done, or at least reviewed by, the finance committee. They usually want to know all the details, but are more concerned with variances from previous years. It is typical to forecast the budget based on last year and any known increases, and summarise in a single line item, as salaries and benefits. In terms of the variance, if it is minor, just explain it verbally. If the variance is large or they are looking to cut costs, give them the details.
For the finance committee I would also prepare a detailed spreadsheet showing positions (not names) and salaries. By no means is the entire board required to have the details as they have delegated the detail finding to the committee.
That said it is entirely within the prerogative of any board member to ask about individual salaries or indeed to ask about the details for any line item and receive the answer. But it would be unusual to include this level of detail in the budget itself unless specifically requested to do so.
That’s what normally happens. However, it’s important to review your by-laws and polices to see if they establish any rules around financial reporting. Whatever the norm is, if your by-laws say otherwise you need to follow them.
Governance
From a governance perspective, the CEO’s salary is clearly under the purview of the board because they are responsible for hiring and firing the CEO. But staff salaries are theoretically completely under the CEO’s purview as long as he stays on budget. I see a red flag when board members ask about individual salaries because it usually means they are gearing up for a round of meddling.
Financial Reporting
In terms of reporting, the organization may elect to follow one of two accounting standards: the International Finance Reporting Standards (IFRS) or the new Section 4400 (financial statement presentation by not-for-profit organizations).
If you use IFRS there are IFRS rules specific to related-party transactions which need be disclosed. Under IFRS, senior management salaries and benefits are included as related-party transactions and must be disclosed. This is not required under Section 4400.
Officially:
CICA Handbook
SECTION 4400
financial statement presentation by not-for-profit organizations
STATEMENT OF OPERATIONS
.30 The primary purpose of a statement of operations is to communicate information about changes in the organization’s economic resources and obligations for the period. Specifically, this statement provides information about the cost of the organization’s service delivery activities for the period and the extent to which these expenses were financed or funded by contributions and other revenue. The information provided in the statement of operations is useful in evaluating the organization’s performance during the period, including its ability to continue to provide services, and in assessing how the organization’s management has discharged its stewardship responsibilities. The statement of operations may also be referred to as the statement of revenues and expenses.
.31 Not-for-profit organizations may classify expenses in the statement of operations by object (for example, salaries, rent, utilities), by function (for example, administrative, research, ancillary operations) or by program. Classification of expenses by function or program may be desirable when the organization operates several different programs or has different areas of interest. Classification of expenses by object can also be useful. An organization would classify its expenses in the manner that results in the most meaningful presentation in the circumstances. Whether the organization prepares its budgets by function or object would be a factor to consider in deciding which method of expense classification would be most appropriate for the organization’s financial statements.
In summary, at the moment there is no requirement to display the details of the salaries and benefits, nor any requirement to display them, even in summary. It depends on what the users (the board) want. For some boards, the board gets one detailed package and the public gets a summarized package.
The sole requirement is to provide sufficient information which properly informs the users of the financial statements how the organization is performing and governing itself.
For example, expenses could be stated this way:
- Occupancy cost
- Salaries
- Etc.
- Total
Or this way:
- Youth Program
- Seniors Program
- Outreach
- Administration
- Total
- Note that each program above could be broken down into Occupancy Cost, Salaries, etc.