I’ve been a member of various not-for-profit (NFP) boards, and held all possible positions on them, for more than 20 years. I’ve never been paid for this (in monetary terms), and have always seen it as a major way of ‘giving back’ and making a contribution to society.

However, the winds of change are a-blowing, and increasingly, NFP boards are starting to remunerate board members, even if it’s just a cursory stipend (such as $20,000 a year).

Most NFPs don’t pay fees, but the vast majority of these have revenues of $1M or less. In these cases, the board is a part of the voluntary workforce, and the organisation cannot afford a spare $200,000 a year or so to compensate a full board and chair.

However, those with multi-million dollar, $10M+ revenues are starting to pay. And once revenues pass around $20M, around 1 in 3 boards now remunerate board members in Western Australia. Five or ten years ago, hardly any did.

Why?

An investigation from Business News last year (‘Large charities tilt towards board fees’, 13 May 2021) investigated the trend toward payment. The reasons are summarised below:

1. The work and responsibilities of NFP directors have grown over the past few years
2. Regulatory and community expectations have also grown
3. Governance has become more complex, especially since various Royal Commissions
4. Boards are becoming more professional, and members are seeing it as a profession
5. An increasing number of directors now have professional qualifications
6. Payment is a sign of professionalism, and attracts more professional applications
7. An increasing number of former execs are seeing boards as a ‘portfolio career’ option
8. Allows board members to build a professional board career
9. It provides ‘some’ compensation for the time and expertise provided (a signal of value)
10. Signifies the NFP’s seriousness of intent around governance
11. Helps attract top quality talent on boards
12. Retain board talent that may otherwise leave to build a professional directorial career.
13. Some larger NFPs cut across so many sectors that membership would likely disqualify existing directors from serving on many other boards (some of whom pay).

Local examples of recent moves to board payment

• SwanCare ($38M revenue) started paying their board members in 2021
• CCI WA started in 2019 ($20K members, $40K chair)
• Juniper started paying board members in 2018 ($10K members, $20K chair).
• Baptistcare also started paying in 2018 ($15K members, $30K chair).
• Brightwater started in 2019 ($40K for chair)
• Bethanie (paying since 2005, director $72K, chair $120K)
• Rocky Bay (Rev $80M) started in 2020

Some boards and organisations feel that, without paying directors (at least something), they could come across as “lightweight”.

However, some high-profile organisations – such as Amana – still attract high-profile business people to sit on the board, without payment. But this is becoming harder.

Paying board members is more about a nod to professionalism, than the money itself. Paying $20K a year, for example, hardly compensates for the time and risk involved.

Directors, after all, could end up with fines or imprisonment, and can be held personally responsible for debts of the organisation if things go wrong.

In recent judgments in cases where things have gone bad, whether a board paid a Director or not had no impact on the guilt or otherwise.

If pay, then how much?

A recent McGuirk survey of 171 NFPs found that the median fee for directors was $23K and chairs $45K.

Larger NFPs pay substantial fees to directors:

• CBH ($300K to chair, $103K to directors)
• St John of God (pays $1.1M to board in total)
• HBF ($284K chair, $170K directors)
• RAC ($468K spent across 15 councillors)

And those in the for-profit sector, the sky’s the limit with the Wesfarmers Chair being paid $798K, Woodside chair $794K.

What’s the process?

Some boards can simply switch on board payments, as it is in their constitution to do so. Some would have to take it to the annual general meeting, and have the motion passed.

For most NFP boards, this can be an awkward conversation to have. Very good people are discussing whether to pay themselves for something they have hitherto been doing for free. Feels a bit icky.

But the conversation, if handled correctly, should not be too hard. Board members need to stand outside themselves and think about what’s best for the long-term good of the organisation.

Doing something you’ve not done before does not make it wrong, nor necessarily make it right.

But the trend towards payment is clear, and if the organisation wakes up one day finding it increasingly hard to attract and retain excellent talent for their board, they may wonder why they are missing out.

In all probablility, they would be blissfully unaware of those that they did not attract, and feel comfortable with who they have. The opportunity cost of great people taking positions elsewhere is too hard to pin down. But the cost is real.

And, in the end, people are the only difference between organisations.

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Source Article: https://www.businessnews.com.au/article/Large-charities-tilt-toward-boards-fees (pay wall)