Board member compensation solely for board service is rare in the nonprofit sector. According to a BoardSource survey, only 3% of nonprofits compensate their board members. Board members are typically only compensated for organizations that are particularly large or complex, such as health care systems or large foundations, and generally only when board duties are time consuming enough that compensation seems appropriate. Board members may be compensated if either the Bylaws of the organization provide for it, or the Board decides to do so by a majority vote.
In Massachusetts there is a push to ban board member compensation by all public charities that receive taxpayer dollars. This stems from news last year that some large health care providers were paying between $19,500 to $82,500 annually to board members for their services on the board. The Massachusetts Senate voted to adopt an amendment that would prohibit board member compensation without approval from the Attorney General. The amendment additionally allows the Attorney General to review compensation of officers and senior managers of public charities. Massachusetts Attorney General Martha Coakley was quoted as saying, “Voluntary service by board members is the practice at the overwhelming majority of public charities, and for good reason. Compensation of board members raises concerns about maintaining board independence and ensuring the proper use of charitable funds.”
What should you think about when considering board compensation?
- Compensation of board of directors for their services as board members is legal under federal law, as long as that compensation is reasonable. Reasonable is a legal term of art that is determined based on the specific facts that apply to the organization.
- Public perception should be at the top of the list of things that organizations think about when considering paying compensation to board members for their service on the board. Will the public and/or donors see it as a misuse of charitable funds? Will the public see it as reasonable in light of board duties? Even if the compensation is legal, it could be far more damaging to the organization in the court of public opinion.
- Know what you are paying for (the types of duties you require, time commitment, etc.). If you are paying for personal or professional services to the organization, see Footnote 1 (below).
- Reasons for and against compensating board members should be carefully weighed in light of what is best for the organization. Consideration should be given to issues such as: ability to attract quality candidates, ability to obtain the level of interest and responsiveness to board duties, ability to attract more diverse members, availability of charitable resources, public trust, and conflict of interest issues.
 This does not apply to compensation of board members for services provided to the organization outside of just the scope of their position as a board member. These compensation arrangements should be implemented only after strictly following the organization’s conflict of interest policy (or state statute if the organization does not have a conflict of interest policy).