Find out if Nonprofit Board Members Can Be Paid Staff
Even though compensating board members is standard in the business world, only a small percentage of nonprofits compensate board members. Those nonprofits that do pay board members are usually large, complex organizations such as health care systems, large foundations or art institutions.
When Reasonable Compensation is Reasonable
However, although nonprofit board service is most often a volunteer activity, reasonable compensation for service is permissible if the bylaws allow and if safeguards are in place to make sure that compensation is fair and in line with what similar organizations provide.
But, such payment is relatively rare. That's because nonprofits serve the public good and should not enrich any person or group of individuals. Board compensation can call into question a nonprofit’s financial integrity. Some states may have rules about board compensation that come into play when your group is incorporated there.Check state laws to be sure.
At a time when unusually high nonprofit CEO compensation is often criticized, we do not recommend that most nonprofits compensate board member. There should be no problem finding community leaders to serve as volunteer board members. The payoff for those board members includes enhancing their professional reputations, meeting other people influential in their community, learning about community needs, and feeling good about their contribution to the community welfare.
Compensating board members may not be unlawful, but, in most cases, it would not be a smart public relations move. And it may well set up potential conflicts of interest. However, board members can be reimbursed for expenses, such as travel and lodging for a board meeting in another city or for attending a conference. Uncompensated costs might also be tax deductible for board members.
A Paid Staff Member Serving on the Board
It is not a good idea to have a paid staff member serve on the board and may even be limited by your state's nonprofit laws. The chief reason staff members do not usually sit on a nonprofit's board is the risk of a conflict of interest.
That said, most nonprofits have at least one staff member on their boards, especially in small nonprofits where the founder may be on the board. We often see an executive director serve as a non-voting member of the board or in an advisory position.
Executive Directors are hired, fired, and supervised by the board, so being a voting member of the board would obviously be a conflict of interest. However, the board needs the ED's presence at board meetings to keep it informed and educated about what the organization is doing. In volunteer-only organizations, those volunteers might do the work, and some may serve on the board. Sometimes state laws permit staff to serve on nonprofit boards, with California being the prime example.
Experts Recommend No More Than One Paid Staff Member
The Better Business Bureau's Wise Giving Alliance suggests that a nonprofit board should include no more than one paid staff member. Most experts recommend that if a staff member does serve on the board, that he or she not be elected board president so that significant decisions about the organization are not overly influenced by that person.
Staff may attend board meetings, especially the CEO or Executive Director. But they usually don't vote. Other team members may attend the meetings as well, either regularly, on an ad hoc basis, or in an advisory position. It is common for the chief financial officer to attend board meetings as well as the chief development (fundraising) person.
New IRS Form
The new IRS Form 990, the tax return for nonprofits, requires more disclosure of potential conflicts of interest, so make sure that having paid staff on your board does not create any problems. Also check with your state office that governs nonprofit incorporation to see what rules, if any, govern paid staff serving on nonprofit boards.