Not-for-profit organizations are subject to rules and regulations governing their compensation practices. If a not-for-profit organization pays excessive compensation to its executives or employees, it may face penalties from both the government and the public.

The penalties for excessive compensation in not-for-profits may include:

Loss of Tax-Exempt Status: If the IRS determines that a not-for-profit organization has paid excessive compensation, it may revoke the organization's tax-exempt status. This can result in the organization having to pay taxes on its income, which can be a significant financial burden.
Fines and Penalties: The IRS can also impose fines and penalties on not-for-profit organizations that pay excessive compensation. These penalties can be substantial and can include both monetary fines and other consequences, such as the revocation of the organization's tax-exempt status.
Public Scrutiny: Not-for-profit organizations that pay excessive compensation may also face public scrutiny and backlash. This can damage the organization's reputation and make it more difficult to attract donors and volunteers.

To avoid penalties for excessive compensation, not-for-profit organizations should ensure that they are paying reasonable compensation to their executives and employees. They should also have clear policies and procedures in place for determining compensation, and they should regularly review and adjust their compensation practices to ensure compliance with applicable laws and regulations.