There is also the related challenge of setting compensation levels and benefits high enough to compete for the most talented candidates, but not so high as to run afoul of the intermediate sanctions rules.

Unfortunately, there is no single book that I've found that combines both the legal and practical elements involved in such important decisions. However, I have found two books that, taken together, substantially cover the territory: Nonprofit Compensation, Benefits, and Employment Law, covering the legal aspects, and Nonprofit Compensation and Benefits Practices, covering compensation levels.

This review covers Nonprofit Compensation, Benefits, and Employment Law, a reference that focuses mostly on the legal aspects of employee compensation and benefits. It not only covers those laws unique to the nonprofit sector, but, thankfully, addresses workplace-related statutes of broader applicability such as workplace discrimination, sexual harassment, the Family and Medical Leave Act, and so on. It even covers 401(k) plans, which until recently were unavailable to nonprofit organizations.

Importantly, the book offers a solid treatment of the intermediate sanctions law -- a topic that is critical for these reasons:

--Board members, officers and other "managers" can be individually "fined" a 10% excise tax for participating in an excess benefit transaction. Voting on a compensation package that exceeds reasonable levels of compensation could give rise to such penalties.

--The employee who is over-compensated can be hit with 25% or, in some cases, 200% penalties.

While the book is comprehensive and well written, I would like to have seen model or sample employment agreements to help in drafting. Had it provided these samples, I would have given this a 5-star rating.