Nonprofit Executive Director Contract Template, Explained Clause by Clause
What goes in a nonprofit executive director contract template?
A nonprofit executive director contract template covers the parties, duties, reporting to the board, term, compensation and benefits, professional development, the annual evaluation, how either side ends the agreement, severance, confidentiality and board approval. It is general information, not legal advice: have a nonprofit employment attorney in your state review any agreement.
Hiring is one of a board’s largest decisions in nonprofit leadership, and each clause in the contract records a choice made with the new executive director. This article and its outline are general information, not legal advice. Have a nonprofit employment attorney in your state review any agreement.
Key Takeaways
- The job description covers the work; the contract covers the term, pay, review and how the job ends.
- Write the first review date and a professional development budget into the contract.
- The full board approves pay using comparability data and records the vote.
- Settle severance and the definition of cause with your attorney before signing, while both sides feel good about the relationship.
Do Nonprofits Use Contracts for Executive Directors?
Many do not. BoardSource noted in 2015 that most 501(c)(3) organizations do not put the board’s agreement with its chief executive into an employment contract, citing a 2013 Nonprofit Times study. BoardSource itself recommends a formal contract in all but the simplest employment relationships.
The difference is what gets written down. A contract sets a term, reasons for ending early, notice and severance, so neither side has to guess, and BoardSource adds that it makes the pay arrangement and both sides’ expectations clear. Without one, ask your attorney how at-will employment works in your state and what your offer letter leaves open.
A contract also outlasts the board that signed it: BoardSource points out that it keeps a new board to what the previous board promised. If you are hiring an interim executive director, put the expected end date in writing too.
How Is a Contract Different From a Job Description?
The job description says what the executive director does. The contract sets the terms of employment: how long, for what pay, how performance is reviewed and how the relationship ends. Bridgespan advises summarizing duties in the contract without letting the summary replace the job description.
Attach the executive director job description as an appendix, as BoardSource suggests, and let the board update it. Small-organization jobs change fast: at under $500K a year, the executive director usually owns fundraising, finance oversight and board relations, and bookkeeping is typically the first duty handed to a contractor as the organization grows. A contract that points to the job description stays current.
What Are the Key Clauses in an Executive Director Contract?
The key clauses in a nonprofit executive director contract are the term, duties, compensation and benefits, professional development, evaluation, termination and notice, severance, confidentiality and conflicts, and disputes. BoardSource and Bridgespan list most of them; professional development is the clause we add.
Term and renewal
Bridgespan notes that many organizations choose a set term with automatic renewal, and BoardSource sees three-year terms most often. The choice: automatic renewal, or a renewal decision the board makes by a date written into the contract.
Compensation and benefits
BoardSource recommends adjusting salary on performance and the market. The mistake we see most often is benchmarking pay against one source. Use Form 990 filings of similar-sized organizations in your region, a salary survey and conversations with peers, and compare by operating budget, not revenue. Our guide to nonprofit executive director salary covers current figures.
One salary search is a guess. Three sources make a benchmark.
Professional development
The clause names an annual budget for training, conferences or executive coaching. For a small organization that cannot match a larger one’s salary, coaching shows investment in the leader at a fraction of the cost of the salary gap, and many executive directors are the only senior leader on staff.
Evaluation
What goes in the evaluation clause. How often, how and by whom performance is reviewed, in BoardSource’s framing. BoardSource recommends a formal, written review every year with input from the executive director’s direct reports. Put the first review date in the contract and tie the pay review to it. If you are still interviewing executive director candidates, ask finalists how they want to be reviewed: the answer drafts this clause. A board guide to the annual executive director review covers the process.
Termination and notice
The clause lists how employment ends: death or disability, termination for cause or without cause, resignation and mutual agreement. Bridgespan observes that many agreements define cause narrowly, keep a broad without-cause provision and require 30 or 60 days’ notice. A board seeing warning signs in an executive director should read this clause with its attorney first.
Severance
Severance varies with the organization, the term and why employment ends; this article gives no figure. BoardSource notes that termination for cause carries no severance while termination without cause typically does. Bridgespan recommends tying any severance to a signed release.
Confidentiality, conflicts, breach and disputes
Bridgespan recommends a confidentiality provision in every agreement. BoardSource adds conflict of interest, outside board service and a caution against a noncompete so restrictive that it discourages applicants. Bridgespan also lists post-employment obligations and what happens if either side breaches the agreement. A last clause names how disputes are resolved and which state’s law governs.
Nonprofit Executive Director Contract Template (Outline)
This nonprofit executive director contract template is an outline, not contract language. Fill in the brackets with the board’s decisions, attach the job description, and give the result to your attorney to draft. This outline is general information, not legal advice. Have a nonprofit employment attorney in your state review any agreement.
| Section | What to fill in | The choice to make |
|---|---|---|
| Parties and reporting | [Organization], [executive director], start [date]; reports to the board as a whole | Meeting rhythm |
| Duties | Per the job description in Appendix A | [Three to five] first-year priorities |
| Term | [Years]; renewal [automatic / board decision by date] | Set term or open-ended |
| Compensation | Salary [amount]; adjusted [at the annual review] | Comparability data |
| Benefits | [Health, retirement, paid time off]; expenses per [policy] | The package |
| Professional development | [Amount] a year for [training, coaching] | Whether coaching is included |
| Evaluation | Written review by [date], led by [chair or committee], with input from [direct reports] | What the review measures |
| Termination | [Reasons]; notice [days] | How narrowly cause is defined |
| Severance | [Terms, if any]; [signed release] | Set with counsel |
| Confidentiality and conflicts | [Policies]; outside board service [rule] | Post-employment limits |
| Breach and disputes | [What counts as breach]; [mediation or arbitration]; law of [state] | Forum |
| Signatures | Board vote [date], in the minutes; signed by [authorized officer] and the executive director | Who may sign |
Who Approves and Signs the Contract?
BoardSource recommends that the full board discuss and vote on the executive director’s compensation package, often on a committee’s advice, because the executive director reports to the board as a whole. In published sample agreements, the board chair then signs under the board’s authorization.
Under the IRS rebuttable presumption, pay is presumed reasonable when conflict-free board members approve it in advance, rely on comparability data and document the decision at the time. Full Form 990 filers report this process at Part VI line 15a (see the Form 990 instructions), and the return is public.
The Signing Sequence puts this in order:
- Draft from the outline: the chair or a committee fills in the agreed terms.
- File the comparability data used to set pay.
- Get attorney review: counsel writes the language for your state.
- Vote and record: the minutes list the terms, date, members present, data, reasoning and how any conflict of interest was handled.
- Sign: the chair or another authorized officer signs, and the first review goes on the calendar, one of the board chair’s responsibilities.
That is the board’s side; the executive director reads the draft with other questions.
What Should the Executive Director Ask Before Signing?
Before signing, the executive director should ask when the first review happens and what it measures, what professional development the board will fund, how much notice each side gives and what happens to pay after a without-cause ending. Their own attorney should review the draft.
Questions to ask yourself before you sign:
- Do you know what the board will measure at your first review, and when?
- Who on the board will you talk with between meetings?
- What support will you have in the first year, and is it written down?
What Happens in the First Months After Signing?
In the first months, the contract’s promises become habits or get forgotten. The board chair and executive director agree on first-year goals, a meeting rhythm and the review date, and decide together how to use the professional development budget in year one.
Coaching is one use of that budget. A coach is the one relationship a new executive director has with no organizational agenda, and six sessions help a leader see patterns, such as how they delegate and communicate with the board. Boards can budget coaching support for the new hire in the professional development line.
A review that lives only in someone’s memory tends not to happen.
If you are drafting the contract this month, write the evaluation date into it, not into a separate memo. If you are the finalist, ask for that date in writing.
Center for Nonprofit Coaching volunteer coaches donate their time, so six one-to-one sessions of affordable executive coaching cost $300, $400 or $600 by operating expenses, 85%+ below market rate. An executive director, or a board chair on their behalf, can start an application.
Frequently Asked Questions
Does a nonprofit executive director need a contract?
Not always. Many nonprofits go without one, though BoardSource recommends a contract in all but the simplest employment relationships.
What is a typical term for an executive director contract?
Three years is the most common term in BoardSource’s experience, with five-year terms used with some frequency.
What severance is typical for a nonprofit executive director?
There is no standard figure: it depends on the organization, the term and why employment ends. Ask a nonprofit employment attorney in your state.
Who signs the executive director’s contract for the board?
In published sample agreements, the board chair signs under the board’s authorization, after the board votes on the terms. Your bylaws or a board resolution should name who may sign.
Put Coaching in the First Year
Volunteer coaches donate their time, so six one-to-one sessions cost $300 to $600 by operating expenses, 85%+ below market rate.
Start an Application →
