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To Pay or Not to Pay? That Is the Question

17 April 2014 at 10:45 am
Staff Reporter

Research for the Australian Institute of Company Directors has shown that the vast majority of directors who serve on Not for Profit (NFP) boards do so voluntarily, showing a deep commitment to the mission of their organisations.

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Staff Reporter | 17 April 2014 at 10:45 am

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However, it has been argued that NFP directors should be paid given the increasing complexity of directors' roles and the fact that NFP board members have many of the same duties and responsibilities as those of for-profit organisations.

The Directors Social Impact Study, released in November 2013 and conducted by Curtin University on behalf of the Australian Institute of Company Directors, set out to understand director remuneration practices in the NFP sector.

The results showed that four out of five directors are unpaid – but this is changing.

Specifically, more than half of all directors (55 per cent) receive no remuneration and a further 24 per cent only receive reimbursement of their expenses or an honorarium.

However, this year's study found that nearly 20 per cent of directors are being paid. The percentage of directors being paid has increased by 9 per cent since 2011.

Who is Being Paid?

The study found that the payment of directors is strongly correlated to the size of the NFP organisation.

About 40 per cent of directors in organisations generating a turnover of more than $20 million are being remunerated compared to only 3 per cent of directors in organisations with turnover of less than $1 million being paid.

Remuneration Decisions

Just as with other governance practices, there is no ‘hard and fast’ rule on whether NFP directors should be paid.

Individual boards and organisations will make this decision based on their particular circumstances.

Influencing factors may include the size and complexity of the organisation and its ability to attract strong and experienced directors. Some arguments for and against director remuneration in the NFP sector are summarised below.

For

Against

Time requirements and responsibilities mean the required level of commitment is too much to expect without payment.
Payment may encourage directors to put more time into their governance responsibilities and be more accountable.
Added incentive for directors to work with boards meeting in regional and remote areas. Paying directors would create a larger pool of candidates willing to be involved.

Payment could attract people for the wrong reasons and not necessarily result in better or more committed directors.
Directors who are driven by passion for the mission or connection with the cause would be preferable.
Increasing trend for directors to donate to the organisations they serve. More prevalent on arts boards than other organisations. Commonly referred to as 'give, get or get off'.
Funds should be directed back into service delivery.

You can learn more about the Australian Institute of Company Directors, and download the full 2013 Directors Social Impact Study here.