Is Board Member Compensation a Good Idea?
Barbara Miller, CPA
If your organization struggles each time it needs to fill a board vacancy and does not always come up with the candidates it desires, it may be time to consider creating a board compensation program.
Add Up the Pluses and Minuses
There are advantages to a board compensation program. Offering compensation could help attract board members with specialized expertise, such as fundraising or a well-regarded community presence. Compensation also might be a good idea if your board members are expected to invest significant time and effort, or if your not-for-profit has a business model that competes with for-profit organizations, such as a not-for-profit hospital. In addition, providing compensation can help create an obligation to perform on the board member’s part and promote professionalism, such as board meeting attendance and accountability.
However, there are also some disadvantages to compensating board members. Likely, the most important disadvantage is that is perceived negatively by the public — it can look bad. Donors expect their funds to go to program services and board compensation represents resources diverted from the organization’s mission. There are also IRS and legal implications. The IRS looks carefully at whether any arrangement could create a conflict of interest. Additionally, board members receiving compensation of more than $10,000 are not independent members of the board by the IRS definition. Also, in some states, volunteer board members are protected from legal liability, while compensated members may not be. So, you will need to check on your state’s laws.
If you decide to compensate board members, do it carefully. First and foremost, the compensation arrangements must comply with the Internal Revenue Code’s private inurement and excess benefit regulations, as well as the IRS rules about “reasonable compensation.” It should be set by independent directors who are not among those to be compensated, an independent governance or compensation committee with insight from an independent consultant. The amount should be comparable to that paid by similar not-for-profits, as determined by compensation surveys or other data. The consideration, evaluation and formal vote should be formally documented. The policy also should address expectations for the board members in exchange for their compensation. Expectations can be described, for instance, in terms of number of meetings attended, hours worked or qualifications and experience.
Leave No Loose Ends
Making a shift to a board compensation program is a major change. Your preparation also should include checking to see how other not-for-profits with compensation programs handled communicating the change to the public, which can help you develop your own communication plan. Be sure to seek advice from an attorney who is familiar with laws governing not-for-profits in your state. Finally, you may want to solicit feedback from supporters and donors before making a final decision.
Newsbits: Fall 2017
Kenneth Tornheim, CPA
This issue’s “Newsbits” highlights a study showing digital revenue on the rise, some new positions that might emerge at not-for-profits and a report that sheds some light on employee retention.
Study Shows Digital Revenue on the Rise
In 2016, online not-for-profit revenue grew by 14% and email revenue grew by 15%, according to a new study by not-for-profit consultants M+R Benchmarks. Based on input from 133 not-for-profits, M&R found that web traffic, email list size and Facebook, Twitter and Instagram followers were all on the rise in 2016, while most individual email metrics were declining. For example, the emails opened per number delivered fell 7% overall, for an average just under 15%. For fundraising messages, the response rate was only 0.05%, an 8% drop from 2015. In other words, a not-for-profit had to deliver 2,000 fundraising emails to generate a single donation. For every 1,000 fundraising emails delivered, not-for-profits raised $36. Furthermore, M+R also found that respondents invested more in digital ads last year, increasing their spending, including paid search, display and social media advertising, by 69%. Visit http://mrbenchmarks.com to see full study results.
New Positions Popping Up at NFPs?
Fast Company magazine has identified three “top jobs” that not-for-profits will need in order to fulfill their missions in the future:
- Chief culture officer (CCO);
- Data scientist; and
- User experience (UX) designer.
According to the magazine, a CCO manages an organization’s relationships with the community, implements internal wellness initiatives and devises policies to combat employee burnout. Data scientists help not-for-profits identify trends and critical information that can guide their programs and service decisions, whereas UX designers improve the online and offline processes that clients use to access a not-for-profit’s programs and services.
Employee Retention Examined
According to The Nonprofit Times “2017 Best Nonprofits To Work For” report, recognition, trust and support — both monetary and otherwise — are critical factors that make not-for-profit employees happy, consequently creating a superior not-for-profit employer. The report ranked DonorsChoose.org as the No. 1 organization. Among the categories considered, the largest disparity overall between organizations that made the “Best Nonprofits” list and those that didn’t was found within “pay and benefits” (an 18-point differential) and “leadership and planning” (a 16-point differential). Across the 50 not-for-profits recognized, the key drivers for employees included confidence and trust in the organization’s leadership and overall satisfaction with the organization’s benefits package. Another statement where the “Best Nonprofits” diverged from others was “this organization gives enough recognition for work that is well done.” About 84% of respondents at the recognized organizations responded positively to that statement, compared to only 66% for not-for-profits that did not make the list.