3 key factors in decided whether to pay NFP Directors

I am often asked how to become a board member for a NFP organisation. It is heartening to see the intent of many experienced, capable people to ‘give something back’ by way of volunteering their skills and expertise. However, the days of well intentioned individuals donating their time in service of a worthy charity is fast being replaced with a highly competitive, demanding and complex world of NFP governance.

I recently wrote a post on how the NDIS is requiring more resilient and robust strategic planning. Equally, I feel that the NDIS is requiring a greater level of board performance and accountability as NFP service providers emulate their corporate counterparts. Yet there is a striking difference between the two. Most corporate boards pay their directors. Most NFPs don’t.

I will disclose upfront that I’m an unpaid director on several NFP boards and have recently supported board recruitment exercises, which is why this topic has been personally intriguing. For example, I pondered if those boards were recruiting paid directors, would I be getting a different response from candidates I have met?

By paying NFP board members, I believe that there is an increased expectation on their individual and collective performance placed on them by donors, members, staff and others as they more actively focus on outcomes achieved for the money they’re paid.

I also believe that there is the potential to improve the level of professionalism by remunerating directors compared to a holding a meeting of well intentioned individuals (which seems commonplace in some NFP boards).

Many NFPs complain about struggling to get their board members to actively engage and contribute their services outside attending board meetings every other month. Perhaps paying them might bring about a stronger sense of duty rather than accepting a lower priority ranking for their unpaid service? After all, many NFP board members have competing pressures from their paid (often senior executive) positions, families and other commitments.

That said, I know that there are a lot of studies that suggest paying directors attracts higher calibre individuals, whereas others conclude that there is negligible impact on overall performance. Pick your study and you can tell whatever story you want!

Given that, if you consider paying your directors to be worthwhile, then to me it comes down to three things:

  1. Is your organisation of such size and complexity with high levels of regulation that it warrants an equally large contribution of time and effort to provide effective governance? If so, perhaps remunerating directors for their time and expertise may be judicious.
  2. Do you have the capacity to pay without adversely impacting your operational position? If your balance sheet is already struggling year to year, don’t overburden it with remunerating directors!
  3. Are your main revenue streams from services and grants? If so, remuneration may be a more likely option than a NFP that receives most of its income from donors and sponsors who may not take favourably to their donations being paid to directors and diverted away from direct service provision.

In every scenario I would suggest a deeply considered approach as this isn’t something to leap into!

If you are comfortable with the above three influencing factors supporting the exploration of remunerating directors on your NFP board, or you just want to discuss the concept with an experienced practitioner, then contact me to find out more.

Creational Consulting specialises in helping organisations and people create intentional outcomes in strategy, governance and organisational performance. With expertise spanning regulated, NFP, infrastructure, agricultural and health sectors we are perfectly positioned to provide high quality, balanced guidance.

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