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Should board members be compensated?
This practice, common on corporate boards, is rare among not-for-profit organizations but is growing slowly because of the increased responsibilities and time demands placed on directors. According to the 2003 survey of boards by The Governance Institute, 88% of hospital and health system boards do not compensate board members. Compensation is most common among boards of Catholic health systems (27%), other systems (15%), County hospitals (37%) and District hospitals (24%). Among Catholic health systems, another 9% compensate selected board members, such as the Board Chair.
A follow-up survey published in November by The Governance Institute and Clark Consulting found little change. Of the 439 organizations that responded (22% response rate), just 12% offer boards cash compensation, with an annual retainer of $8,572 and an average per meeting fee of $528.
If your board is thinking about compensation, consider these questions:
- What is our rationale for compensation? Why would compensation make governance more effective?
- What has been the experience of other boards in similar organizations that adopted compensation?
- Would we be able to recruit and retain highly competent directors better than we can today?
- Are there any downsides to compensating board members?
An opinion from legal counsel on the implications for directors’ liability is essential. In addition, how will the community and public regulators, such as the State Attorney General, view compensation for directors? Draft guidelines from IRS (Feb. 2007) say boards generally should not be compensated, and if they are, compensation must be approved by a committee of independent directors.