Is Paying Nonprofit Board Members Really an Option?

When considering whether and how to compensate members of nonprofit boards of directors, the distinctions between can, should and how are crucial. The old axiom, just because you can do a thing doesn’t mean you should do a thing, is certainly relevant. 

The topic of board compensation has arisen more in my work with nonprofits in the last two years than ever before. Some nonprofits are, or are considering, paying nonprofit board directors for their service instead of having an all-volunteer board. The top reasons for this practice are informally reported to be an attempt to do two things.

First, make board service opportunities more equitable for all trustees, helping to ensure that community representatives and members with relevant lived experience are represented without causing them undue hardship. An example of this would be people who work at jobs that do not allow paid time off for volunteer service and would lose income or need to pay for child care to be able to participate in board service. 

Secondly, secure the time and knowledge of highly specialized experts in fields, such as medicine and scientific research. According to BoardSource, “Board compensation is more common in particularly complex nonprofits, such as healthcare systems or large foundations.” 

In the case of foundations, trustee compensation is more likely to happen at private foundations that do not have to raise funds from the public, according to Cliff Walters, Esq., principal at Blalock Walters, Attorneys at Law. 

“There is a general expectation from the public that board members of nonprofits will serve as unpaid volunteers,” he said. “Where a nonprofit seeks donations from the public and relies on the goodwill of the community, the payment to board members raises concerns that should be carefully considered before paying board members for their service.” 

What happens if your nonprofit isn’t a complex medical network or a private foundation? Let’s review a few angles your organization should consider when determining its board compensation policy. 

Duty of Loyalty and No Personal Benefit

Board service is informed by three main tenets, the duty of care, loyalty and obedience. The duty of loyalty outlines the concept that trustees should put the interests of the organization over their own interests, disclose all conflicts of interest and not unduly benefit from their relationship with the organization. Payment to board members has traditionally fallen under the umbrella that trustees should not benefit from their relationship with the organization.

Claire Guthrie Gastanaga, Esq., a partner at Dunlap Law, shared how an organization should create equitable representation: 

“Refrain from offering compensation or expense reimbursement only to some board members whom someone decides ‘need’ the money. Don’t make board members ‘apply’ to be compensated (asking for reimbursement requests/receipts is okay). Some board members will accept compensation or reimbursement, some will choose not to accept, and some will accept one or both and donate the funds received back (perhaps that could be their chosen meaningful contribution for the year).

“Offering payment (compensation and/or expense reimbursement) to everyone preserves the dignity of everyone. Make sure that the compensation and reimbursement are reasonable. Make sure board members understand the tax and other legal implications of any compensation/reimbursement policy for both the organization and the individual board members …” 

Both Guthrie Gastanaga’s article and the information that Walters shared agree that, “compensated board members may lose certain immunity defenses that are available to volunteer directors.” The fact that compensated board members may be vulnerable to legal liability is an important factor for an organization to consider when they are determining its volunteer-versus-paid-trustee stance. 

Expense Reimbursement Can Be a Good Equalizer

Though direct board compensation may be a bit of a minefield in terms of legal liability, public trust and equitable execution, reimbursement of expenses can be a solid alternative. 

Historically, many nonprofits have not reimbursed board member expenses, considering the personal covering of those costs a form of financial support from the trustee. 

In an effort to create more equitable access to board service, organizations may consider reimbursement of non-traditional expenses as acceptable, such as the cost of child care during board meetings as mentioned earlier. Mileage and/or payment of travel expenses are other areas that organizations can consider when attempting to make board service more accessible.  

Each tax-exempt organization’s policies and practices may look a bit different. It is important to make the policy applicable to all board members, not just to assume that specific board members will need financial assistance. When creating the policies, make sure to solicit input (and not just have the executive committee decide for everyone), address how payments and/or reimbursement will or won’t affect each trustee’s responsibility to give a financial gift to the organization, and to consider important angles, such as potential loss of trustee liability coverage. 

Compensation, reimbursement and overall responsibilities of boards of directors are complicated topics. It is important to regularly review your nonprofit’s related policies and procedures and to ensure that they are in line with the organization’s overall values. 

The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO. The author is not a lawyer or financial professional, and this article should not be considered legal or financial advice.