Third Dimension – NFPs paying their Board members – things to consider

February, 2017

By Andrew Egri, Lawyer

If you are compensated for your services as a board member of a not-for-profit organisation with gratitude, rather than monetary payment, you are not alone.

The 2016 Remuneration Survey, commissioned by the Australian Institute of Company Directors, confirms that the vast majority of boards of not-for-profit organisations are unpaid.

Specifically, the survey found that of the 732 responses from board members of not-for-profit organisations, 63% are unpaid and with the remainder receiving fees.

The median annual amount received by a board member of a not-for-profit organisation was $20,000. The top 10% of paid board members received more than $48,000 annually. Not surprisingly, those who are board members of larger organisations are more likely to receive a larger amount. Board members of not-for-profit organisations with assets of more than $100 million received on average $39,281 per annum.

Those who chair the board of their not-for-profit organisation receive a premium over the non-chair board member. Accordingly, the median chair received $40,000 per annum, while the top 10% of paid chairs received in excess of $75,000 per annum.

Of those unpaid board members, 16% said that remuneration had been discussed by their board in the last year.  If your board is considering whether remuneration is appropriate, it is prudent to consider not only the potential benefits, but also any implications for the board and its members.

Reasons to remunerate the board

Many not-for-profit organisations consider paying their board members in order to:

However, boards will need to be mindful that remuneration may not be positively received by stakeholders and could discourage donors. If the decision is made to remunerate board members, it will need to be explained to stakeholders along with the anticipated benefits. 

Things to consider

Boards that are considering remuneration should be aware of, and consider the various implications, both positive and negative, which may include those relating to:

   1. the liability of board members;
   2. the company name; and
   3. legal restrictions.

1. Liability of board members

There are legal advantages in not paying board members in relation to their exposure to personal liability. While a board member can be personally liable for the not-for-profit organisation’s breach of certain laws, in many cases there are exemptions made to those who volunteer. For example, boards should consider the implications in respect of the following areas of law:

The national model work health and safety laws set out the responsibilities of board members and, in respect of certain offences, hold them personally liable. However, the laws give immunity from prosecution to volunteer officers (but not paid officers).

The civil liability laws in each State and Territory provide to board members of not-for-profit organisations varying degrees of protection from personal liability if they are a volunteer on the board. Boards should consider whether remuneration would cause their members to forego their immunity.

2. Company name

Section 150 of the Corporations Act 2001 (Cth) permits a company to not use the word “limited” in its name if:

   (a) it is registered with the Australian Charities and Not-for-profits Commission as a charity; and
   (b) its constitution:
          a. prohibits the company paying fees to its board members; and
          b. requires the board to approve all other payments the company makes to board members.[1]

A charitable public company limited by guarantee that wishes to remunerate its board members must include the word “limited” in its name.

3. Legal restrictions

Members of the Australian Institute of Company Directors can obtain the 2016 Remuneration Survey at www.companydirectors.com.au.

Contact Mills Oakley

Vera Visevic | Partner
T: +61 2 8289 5812
E: vvisevic@millsoakley.com.au

 

 

[1] Section 151 provides that those exemptions granted to companies prior to the establishment to the ACNC continue, meaning that those companies may continue to omit “limited”.

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