Non-profit Directors and Trustees – Should Board Service Pay?

In the for-profit world, the idea that companies must pay to attract both board and staff talent is unquestioned. There is also general agreement that full-time positions in the non-profit world must be compensated to attract talented staff. Public opinion quickly diverges, however, when the subject of compensation for non-profit directors is raised.

Trustee compensation is a sensitive topic in the philanthropic world. Many people believe that board members should serve out of a sense of giving back to their community. However, the philanthropic world is diverse and there are many positions that require extraordinary talent and an extraordinary time commitment to lead them. Nonprofit organizations are also increasingly complex and subject to complex rules and that make significant demands on that talent. Increasingly, board members face the potential for liability if they fail to fully adhere to these complex and fast changing rules.

Even so, many still hold an outdated view of charities. Many people still think of charities as volunteer operations administered around the kitchen table and funded by carwashes and bake sales. While small volunteer run organizations still exist and form an important component of community engagement in this country, they have little in common with the sophisticated side of the charitable sector that operates on highly professional basis.

For example, large private foundations, hospital systems, universities, research institutes, and nationally and internationally federated charities are essentially complex mission based businesses that are in fierce competition with for-profits and other large non-profits for talent. To illustrate the outdated views, a 2009 article quoted Tim Delaney, chief executive of the National Council of Nonprofit Associations, as saying:

“We had our nonprofit lobbying day on Capitol Hill in July, and our members spoke to their elected officials about this [healthcare bill] issue. We heard a constant refrain: ‘Gee, we never thought about nonprofits as employers before.’”

In reality, the Urban Institute’s National Center for Charitable Statistics reports that in 2006, nonprofits, including charities and other types of tax-exempt organizations accounted for 8.11 percent of the wages and salaries paid in the United States. (Source: The Urban Institute, National Center for Charitable Statistics, Nonprofit Almanac 2008).

While critics argue that many of the board members are already well-off, requiring board members to serve on a particularly demanding board on a volunteer basis would seem to institutionalize wealthy individuals who can afford to take time away from work to serve on a demanding board. Shouldn’t board members be selected based on their talent, vision, and expertise not on the amount of leisure time they have at their disposal?

I’m interested in getting readers thoughts on this topic – sound off in the comments!

Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.

3 thoughts on “Non-profit Directors and Trustees – Should Board Service Pay?

  1. I agree Ellis that if board members can’t be paid that would mean only wealthy, retired or non-working individuals with a cause can serve on a board and form a non-profit. However, for instance, there are many who have special talents that only they can provide as in teaching or counseling that would like to form a non-profit to help the underprivileged or form a specialized school. So would this be a conflict of interest to be paid to teach while serving on the board.

    Or, individuals that have a mission who can’t afford to donate full time service not be able to contribute. I think as long as a non-profit is truly fulfilling its mission to better society and there are people who wish to support their cause should be allowed. I don’t understand the difference of why staff can be paid and not board members especially if the salary is commensurate with the work they are doing.

  2. Great topic…and one that comes up on a weekly basis with our clients. I think the lines you draw between small community charities and larger, more complex groups is a valid division point. Compensation for directors in the latter group can make sense, particularly in light of the need for time and talent. When it comes to the small charity group, typically led by a founder/President/Executive Director-type person, compensation is better limited to paid employees. Conflict-of-interest, inurement and other fun topics only complicate matters further.

    A controversial topic, to be sure.

  3. I see several nonprofits make the mistakes of getting prestigious people on their board, but haven’t seen these individuals donate their time or money to the cause. Being on a board you should give back for respect of being able to be on that board.

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