Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
Non-profit boards of directors are rarely compensated for their governance. However, the practice is growing, slowly, due to the increased demands, increased regulations, and greater financial oversight responsibilities of non-profit board members. Boards of directors should review their mission and the time commitments expected of board members. The single biggest factor a board should consider relative to director compensation is whether any amount of compensation will increase the effectiveness of board governance.
A 2003 assessment of boards by The Governance Institute provides the following snapshot of American health care compensation practices:
- 88% of hospital and health system boards do not compensate board members
- 27% of Catholic health systems do compensate board members
- 15% of County hospitals compensate
- 37% of District hospitals compensate
- 9% of Catholic hospitals provide extra compensation to selected board members such as the Board Chair
A board of directors assessing the need to compensate should consider the following:
- What is the rationale for compensation? Why would compensation make governance more effective?
- What has been the experience of other boards in similar organizations that adopted compensation?
- Would the compensation package that is available for the organization to offer be enough to materially change the board’s ability to recruit and retain highly competent directors?
- Will board compensation come at the expense of providing needed dollars to the organization’s mission?
- Will board compensation become a detriment to fundraising efforts?
- What effect will director compensation have on board structure?
The organization’s mission and goals rather than compensation typically drive non-profit board members. Non-profit organizations are often a group of like-minded citizens working together for a needed change to the conditions in their community. In this situation, board members might prefer the compensation for their service to go toward the change they are seeking to make in their community. These motivated individuals will typically provide the best governance available to the organization because of their motivation to see change.
The goal of any non-profit board should be to provide the education, products or services to achieve the mission the governance structure was developed to achieve. This generally means the board of directors has the responsibility for strategic planning, good financial stewardship, mission effectiveness assessment, succession planning and financial reporting.
Each organization will have a different set of issues for board members to address. Depending on the organization’s budget, board members may donate not only their time but also professional services. Funders may view compensated board members actively engaged in fundraising efforts for the organization negatively, and compensation may hinder fundraising efforts.
An often-acceptable alternative to board member compensation is expense reimbursement. Board members should not be expected to expend their personal assets carrying out the organization’s mission. Even motivated board members will be reluctant to volunteer in such situations. Board members are reimbursed for all expenditures on behalf of the organization if such expenditures cannot be avoided. Board members should also be provided with the needed tools to carry out the activities expected of them.
Non-profit board service is a task most people are willing to do if they believe in the mission of the organization and feel qualified to advance the organization’s goals. Switching from an all-volunteer board to a compensated board should only be done if the compensation will raise the level of professional governance currently being provided.
© Dr. Earl R. Smith II
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Related Articles:
- Non-Profit Board Member Selection – Excellence Breeds Excellence
- Non-profit Boards – Supporting and Governing
- Non-profit Board Governance Models
- Governance By Visionaries
- Nonprofit Governance for Results
- Non-profit Leadership – Good Board Characteristics
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