When The Honolulu Advertiser ran a front page story last Sunday on the salaries of nonprofit executives, it must have sent a jolt down the spines of many executive directors and nonprofit boards in the state. After all, with the exception of public for-profit companies, elected officials and high-ranking government officials, the salaries of most workers in Hawai'i remain their business and their business only.

However, in the nonprofit sector, the compensation of the executive directors and other highest-paid staff members is part of their Form 990 tax return and a matter of public record. The reason for this extraordinary level of disclosure is our government confers tax-exempt status to these organizations and believes that the public, especially an organization's supporters, funders and beneficiaries, has a right to know about the compensation of their executives. Still, there are three major challenges that arise from compensation and how boards and executives must deal with them.

First, compensation must be reasonable. The boards of nonprofit organizations need to review the duties and responsibilities of their chief executive and place them in the realm of a competitive job market to determine what a reasonable level of compensation is. The easiest way to do this is to seek out comparative data from organizations that provide a similar scope and scale of services. For certain kinds of organizations, such as foundations, national surveys are conducted each year and provide a good context for compensation on most key positions in their organizations.

For a lot of small organizations in Hawai'i, this remains a daunting task. The place to start is for the board and staff to compile a list of organizations they feel are comparable in complexity and size and to visit the Guidestar Web site (www.guidestar.org) to look at those organizations' latest Form 990 returns. They can also interview the organizations directly in an effort to share current information and trends. In a previous era, organizations were reluctant to cooperate, as nonprofits with lower compensation structures were concerned about being raided. However, now compensation information is easily accessible, so why not cooperate and share ideas?

The second big issue facing nonprofit boards with regard to compensation is pay for performance where many organizations are moving to tie compensation directly to the achievement of key organizational and individual performance goals. In certain instances, this shift in compensation philosophy can seem directly at odds with what seems reasonable when "reasonableness" is interpreted to mean the middle of the road.

Nonprofit boards become reluctant to pay at the top end of the scale in fear that they will be seen as unreasonable or singled out for public scrutiny. However, boards should not be conservative when organizations and leaders exceed expectations; they should feel proud of their accomplishments and provide meaningful compensation as a consequence.

Finally, the biggest issue of all is the public perception around nonprofit salaries in general. Like it or not, many people believe most nonprofit workers are there for intrinsic rewards in serving the missions of their respective organizations and that nonprofit salaries, regardless of whether they are reasonable, should not be very high. This view was repeated in response to the recent sampling of nonprofit salaries in The Advertiser when people looked at what appeared to be reasonable compensation provided to some of those executives and still believed it was too high to warrant support for their organizations.

Consider this: All of us depend on the quality of the services of nonprofit organizations. They help us when we are ill, they educate or care for our children, they provide for cultural and artistic expression and they safeguard our environment. The challenges of running a hospital are equally or more complex than running most for-profit businesses in our town and more of us depend on the quality and affordability of a hospital than on most local businesses.

Several nonprofit consultants and foundation leaders have noted that the salaries of nonprofit executives in the greater San Francisco Bay Area have recently increased substantially in comparison to Hawai'i while maintaining a similar standard in the cost of living. This compensation shift has been driven by the clear recognition that attractive compensation was required to successfully recruit or retain good executives and staff to run their nonprofits.

We need to get away from the notion that people still expect nonprofit staff members to be paid less than for-profit counterparts. Why not pay for the very best talent we can get to help us all?

Kelvin H. Taketa is president and chief executive officer of the Hawai'i Community Foundation.

Reach Kelvin Taketa at kelvin@hcf-hawaii.org.