Board Members Can Be Paid……Right?

Recently I”ve attended several events where someone has stated that board members can”t be paid.

But this isn”t necessarily the case. Many states allow for board members to be paid. In fact, here in Texas the Nonprofit Chapter of the Business Organizations Code states:

Sec. 22.054.  AUTHORIZED BENEFITS AND DISTRIBUTIONS. A corporation may:

(1)  pay compensation in a reasonable amount to the members, directors, or officers of the corporation for services provided;

(2)  confer benefits on the corporation”s members in conformity with the corporation”s purposes; and

(3)  make distributions to the corporation”s members on winding up and termination to the extent authorized by this chapter.

But as with anything just because you can do something doesn”t mean you should.

One reason for not paying board compensation might be public perception. There are still donors out there that feel every dime, nickel and penny ought to go to an organization”s programming. With Part VII of the 990 requiring organizations to report compensation this is something donor”s will be able to see from the outset and it may turn them off. Particularly since the best online casino public perception of a board member is that it is a volunteer position.

There are also penalties that can be assessed (or the possibility of an organization losing its tax exemption status) if  compensation is found unreasonable. I wrote about this a few months ago with regard to executive compensation.

Something else to bear in mind is that many of the laws and regulations protecting board members against liability (while they are serving) only do so when they have a volunteer status. By paying board members they effectively lose their volunteer status.

For a little guidance on what the IRS looks for when determining “reasonable compensation” this is a great article. Another great article on considerations that must be made is this one by the ASAE.

A few other things organizations will want to bear in mind are:

  1. Compensation shouldn”t be confused with loans. In Texas, loans can”t be made by nonprofit organizations to their directors.
  2. Compensating board members will likely increase the opportunities for a conflict to arise. Consequently, a conflicts of interest policy will be imperative.
  3. If an organization doesn”t want to take on the risk that may come with compensation there is definitely a median that can be met. Board members can be reimbursed for expenses incurred while serving according to a reimbursement policy.
  4. Organizations need to check local laws (and their bylaws) to ensure that compensation isn”t a problem.

At the end of the day not saying that organizations should pay its board members. Frankly, you give em” fajitas during the next board meeting and I”m sure you”d have some pretty happy people. But, there is precedent that allows for it.

 

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