It is interesting to note that, for most part, regulations covering for-profit, publicly traded companies provide few, if any penalties, and certainly none are spelled out for board members involved in approval of compensation deemed to be excessive. Since in many situations, only penalty is that companies cannot deduct amount of an excessive compensation payment, brunt of penalty falls onto shareholders. Conversely, NFP regulation calls for a 25% excess tax plus a disgorgement of excess amount. If this does not occur, fine jumps to 200%. In addition, board members of NFP, most of who are not paid for their board service, but are merely acting in an altruistic manner, are subject to individual fines of lesser of 10% of excess, or $10,000.

What are components of NFP compensation package? There are traditionally six (6) elements that to one degree or another comprise Total Compensation Package of executives, whether or not they are part of a For Profit or NFP. These are base salary, annual bonuses or incentives, long-term incentives which could include stock options, restricted stock, phantom stock, and a large group of equity and cash based programs, typical fringe benefits, supplemental benefits and perquisites, and lastly various written documents or agreements that spell out employment and severance provisions. In case of NFPs, most of these elements are included but often with scaled-down arrangements. One area that is definitely changing is increased acceptance and use of annual bonuses and incentives. Rather than paying cash compensation in form of salary only, many NFPs are beginning to introduce variable pay. This not only better aligns cash compensation with achievement of predefined results; it also allows Board to in effect “reduce” pay when NFP’s situation changes, performance objectives are not met, or when there are cash flow issues. It also allows NFP to provide a more competitive compensation package that better reflects realities of market place. The one compensation element, which heretofore has been virtually missing from Total Compensation Package, is use of long-term incentives, which typically exists in For Profits in form of equity. This is one of major disparities between For Profits and NFPs, and it is one of areas which needs to be addressed in order to begin to “level playing field” between two business groups.

Although it is generally understood that individuals in comparable positions within For Profit and NFP industries will not necessarily be paid at exactly same level, there is still a misguided concept held by some individuals, that working at an NFP is rewarding enough, so that their overall compensation should be markedly lower. While altruism is clearly evident, it doesn’t pay rent. Recognizing ability of an NFP to pay reasonable levels of compensation, without harming organization’s ability to carry out its mission, should be a main consideration in determining what compensation elements comprise package, and in what amounts.

After coaching hundreds of entrepreneurs at various stages of their evolution, I’ve found that answers to these 5 questions can make or break any endeavor. Of course there are lots of other areas that must be addressed, however these will get you moving in right direction quickly.

Shhh, don’t tell anyone. Once you have these answers, you’ve created a basic and relatively painless (dare I say it?) Down and Dirty Business Plan™.

Are you ready? Go for it!

1. What problem do you solve?

You MUST begin here. If you don’t know what problem you solve, you don’t have a snowball’s chance. What real need do your potential customers/clients have that isn’t be fully addressed yet? Where’s their pain?

2. For whom do you solve it? or What is your niche?

In today’s economy, best (many say only) way to market your goods or services is to be very specific about targeting your potential customers. You can locate them, they can find you, and others can refer to you. This is scary for most entrepreneurs because it means saying “No” to some people. Let it go. It works!

3. Who’s your competition?