Posted on April 21, 2006

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Nonprofit Board Compensation Continues to Spur Debate

The practice of paying directors and trustees of not-for-profit entities, including healthcare organizations, private foundations, and specialty agencies that operate like businesses, continues to spark debate, the Indianapolis Business Journal reports.

Supporters of compensation for nonprofit board members argue that paying busy professionals to help run nonprofits ensures that they devote ample time to their board responsibilities. "It's simply the nature of the world," said Norm Lefstein, an Indiana University law professor who chairs the compensation committee at student loan guarantor USA Funds. "If we didn't provide some compensation, we wouldn't get the kind of time commitment and attitude we get from a board like ours."

Critics of the practice, on the other hand, wonder why directors of nonprofit organizations should be paid at all. "Why pay the wealthy for what should be volunteer work?" asks Pablo Eisenberg, a senior fellow at Georgetown University's Public Policy Institute. "It's just another development that fudges the line between for-profits and nonprofits. That's money that should be going to the mission."

Rather than prohibiting board compensation outright, the Panel on the Nonprofit Sector recommends revising nonprofit tax forms so organizations can more fully explain why directors need to be paid. "The panel generally discourages payment of compensation to board members by charitable organizations," the group said in a report released last summer, but "in cases where compensation is deemed necessary...charitable organizations should" go through a formal process to make sure the compensation is fair. The process, which would include a review of compensation at comparable organizations, is similar to the procedure the Internal Revenue Service recommends boards follow when setting executive salaries.

Still, paying directors is highly unusual at most publicly supported Indiana nonprofits — the organizations most likely to be harmed if the public was to lose faith in the sector. "I have felt honored to be a part of [the board] and could not imagine receiving compensation for serving," said Peggy Boehm, chairwoman at Goodwill Industries of Central Indiana. "Board members are so committed to the Goodwill mission, I am sure all of us would agree that we would prefer that money be used for the mission rather than to compensate us."

Davis, Andrea. “Paid Boards Spur Not-for-Profit Debate.” Indiana Business Journal 4/17/06.

Primary Subject: Philanthropy and Voluntarism
Location(s): National, United States

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