Executive Briefing | by Monica E. Oss | March 17, 2016
Last week, I learned that the board of Tampa General Hospital has voted to pay its board members. The 15-member board will be paid annual compensation ranging from $15,000 to $30,000, according to The Nonprofit Quarterly article, Tampa General Hospital Board Votes to Pay Itself. The board meets six times a year, and its members serve on committees and attend strategic retreats with hospital staff. Only one board member resigned as a result of the vote.
The question – is this common? The vast, indeed overwhelming majority, of board of director members of charitable non-profits are unpaid volunteers, according to Can Board Members Be Paid?, by the National Council of Nonprofits. But payment appears to be increasingly common, particularly for non-profit foundation boards.
A survey, Foundation Expenses and Compensation, prepared by the Urban Institute, the Foundation Center, and GuideStar, reviewed the tax filings of the 10,000 largest foundations from 2001 through 2003 – and found that 20% of independent foundations compensated trustees (see Board Compensation: To Pay Or Not To Pay?). The median compensation for that period was $8,000 per year, while the average compensation was $15,700. In an earlier survey, the researchers found that roughly four-fifths of compensated independent foundation trustees received less than $25,000, while only one percent received over $100,000.
For comparison, for-profit companies typically have paid board members – usually an annual salary and a performance-based bonus, and often in the form of company stock. The average total compensation for non-employee board members at publicly-traded companies was $277,237 in 2015, compared to $215,000 in 2010, according to the Spencer Stuart Board Index (see 2015 Spencer Stuart Board Index). (Privately held companies do not need to report board compensation so those compensation statistics are not known.)
The Tampa General case raises the question – does payment of board members defy the purpose of charitable organizations and their boards? Is this an outrageous move? Should non-profit board compensation be illegal? I haven’t made up my mind.
The downsides to a paid non-profit board are obvious. There is conflict of interest – board members voting themselves large raises without any checks and balances (in for-profit companies, the counterweight is from shareholders). And there is appearance – current and potential donors often look to the board to see who on the board is giving money (not getting paid) as a signal of whether they should contribute.
But having served on many non-profit boards and with my current work, the answer is not quite so simple. There is the difficulty of getting people to commit to the time requirements of board service. Then, there is finding the “expertise” that you need on a board. Tampa General spokesman John Dunn was quoted as saying, “The board believes this is a useful tool to have in the future as the hospital world expands and the hospital gets a lot more complex. There may be a time when you have to consider paying board members with different types of expertise.” It is like having a stable of on-demand “consultants” on your board (but you could argue that is not the purpose of the board).
There are also the specific issues that apply to non-profit health and human service organizations. The field is getting more complex and more competitive. And, as I discussed yesterday (see The Changing Landscape Of Bad Debt & Charity Care), the amount of charity care provided by these organizations is on the decline while other business challenges are on the increase. So the differences between non-profit and for-profit organizations in the field are decreasing. Maybe non-profit organizations need to rethink the role of their organizations in the community – and with it, the role of the board and their compensation.
I don’t think that in the current political and regulatory environment, compensation for board members of non-profit organizations will become the norm. But I thought the issues raised by Tampa General’s board are issues that need broader discussion as we look at governance, and competition, and sustainability of health and human service organizations. My OPEN MINDS colleagues had some very definite opinions about whether non-profit board member should be paid. I’ll be sharing those next week – so stay tuned.