Board members are not compensated for their services in the vast majority of nonprofits. Based on our class discussions, nonprofit board members should want to serve due to their allegiance and support of the mission. Is it a good thing to have an uncompensated board? Are there benefits to compensating the board members who serve the organization? Most, if not all, board members of for-profit organizations are compensated. Would for-profit boards be less effective or more effective if they were unpaid? There are many questions that can be raised based on the underlying reasons why board members choose to serve. I found it interesting recently in an article where legislators in Massachusetts were getting ready to pass legislation prohibiting compensation of nonprofit board members (Chiu). There was outrage over the high compensation of board members in four of the state’s nonprofit health insurers. A comment from Nicholas Donohue, Chief Executive of the Nellie Mae Foundation, in the same article peaks my interest. He said, “We think we get a benefit from some modest payments to people to keep them engaged and get their expertise. We are an education foundation trying to make big changes. And we get a benefit from paying our board” (Chiu). Another interesting quote came from Beth Smith, Executive Director of the Hyams Foundation. She said, “A number of our trustees come from the nonprofit sector, including grass-roots groups, and immigrant communities and low-income communities. It might affect our ability to attract some people if they really need to make a tradeoff in terms of their own income and lives” (Chiu). There can be arguments for and against compensation of board members for nonprofits. The ultimate goal should be the success of the organization.
The first question that comes to my mind is does compensating board members make the nonprofit more effective? If a board member was compensated, would they devote more time to the organization? Would this same board member be more passionate about the organization? I would venture to say no. Nonprofit board members should be drawn to serving in an organization based on their association with the mission and purpose. On the other hand, for-profit board members are compensated, many very highly, and they do little more than attend a quarterly meeting. For-profit board members rely more on their professional staff to manage the organization. Nonprofit board members are more involved in the strategic planning process of the organization than their for-profit counterparts (Bart and Deal, 13-14). Strategic planning is vital to the success of an organization. So shouldn’t nonprofit board members be compensated since they are more actively participating in the organization’s future success? Compensation may become an obstacle if the organization attracts board members who are there simply for the additional pay rather than the success of the organization and its mission.
The second question that comes to mind is does it increase diversity to compensate board members for their service? This would be an interesting research study. We have discussed repeatedly in class, and read it in multiple articles, that diversity of the board is important for the organization’s success. Mr. Donohue’s comment in the article by Ms. Chiu underscores the importance placed on functional diversity. Clearly he would like to keep paying board members to “get their expertise”. Ms. Smith focuses more on demographic diversity or stakeholder representativeness saying that her organization’s board members come from “immigrant communities and low-income communities” (Chiu). We see based on these comments that board compensation is regarded for both demographic and functional diversity. Of course, does increasing these make the organization more effective? Effectiveness really depends on the organization. There is still the danger that you attract the wrong kind of board member by offering compensation.
Compensation of nonprofit board members can be a polarizing topic. It can have its advantages and disadvantages. It is important to have stakeholder representation on the board, and it is also important that the board has members that bring a variety of professional backgrounds and skills that they can contribute to mission achievement. Boards must function at a higher level in the nonprofit world. Those organizations are much more dependent on the effectiveness of their board. Great care must be taken to ensure that board members for nonprofits join for the right reasons. Compensation may enhance that purpose, and that should be up to the nonprofit organization, and the community it serves, to make that decision.
References
Chiu, L. (2011). Mass. Foundations Consider Proposed Restriction on Board-Member
Pay. The Chronicle of Philanthropy. Retrieved June 11, 2011, from http://www.philanthropy.com/blogs/state-watch/mass-foundations-consider-proposed-restriction-on-board-member-pay/645.html
Bart, C. and Deal, K. (2006). The governance role of the board; in corporate strategy: a
comparison of board practices in ‘for profit’ and ‘not for profit’ organisations. Int. J. Business Governance and Ethics, Vol. 2, Nos. ½ 2006, 2-22.
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