Charity Leaders Should Pay Close Attention to Obama's Pay Guidelines

* The use of “clawback” provisions that allow the nonprofit organization to recover bonuses and other types of incentive pay in the event financial results must be restated.

* Limitations on the terms and length of severance benefits.

* The ease with which outsiders can understand the compensation structure and the review-and-approval process.

* Reasonable controls on executive and board travel and on education and entertainment expenditures.

* Whether pay levels throughout the organization have been reviewed for internal equities.

While it’s important to pay attention to compensation policies and practices, it is also vital for charity leaders not to overreact. Government-enforced compensation restrictions for the nonprofit world are not inevitable.

But it is up to nonprofit groups themselves to set their compensation so fairly and publicy that policy makers will not be tempted to consider limiting them. It is not just to avoid new regulation that boards must act, but to maintain the trust of of the American public.

Ralph De Jong and Michael Peregrine are lawyers at McDermott Will & Emery, a law firm in Chicago. They specialize in advising nonprofit organizations.