Date posted: 20/02/2020 4 min read

Should directors of non-profit organisations be paid?

Insight paper puts forward the pros and cons.

In brief

  • Paying directors may help to improve the board’s performance
  • Should the satisfaction of contributing to a worthy objective be enough?
  • Paying directors will make your board more representative of the wider community

Should directors of not-for-profit organisations be paid or should the satisfaction of knowing they are contributing to a worthy objective be enough?Most NFP directors are not paid and there are good arguments for and against whether they should be. These are set out in Remunerating Not-for-profit Directors, for Chartered Accountants Australia & New Zealand members.

The Business Insight paper is intended for directors, executives, accountants, managers and staff involved in charities and other NFPs and provides useful tips on developing a remuneration policy. Payment of directors refers to fees for service, not reimbursements for reasonable expenses.

A primary consideration is whether any legal or regulatory factors preclude your organisation from paying directors. Others are whether your organisation can financially afford to pay its directors and the tax implications of doing so.

Some potential directors may not be able to afford to participate without payment.

The paper points out that paying directors is not necessarily contrary to the purpose of an NFP and may help to improve the board's performance. The Australian Charities and Not-for-profits Commission generally does not say charities cannot pay their directors but – and it is a big but – those that are registered as companies with the Australian Securities and Investments Commission and do not include the word Limited in their name must not pay their directors.So, if you decide that paying your directors will improve the board's performance, how will that benefit be assessed? And how much can you pay? Should all directors be paid equally or according to the particular services they provide? Does the chair get more?Several other factors favour paying directors. It may be easier to attract high-calibre candidates and will almost certainly help to diversify your board. Some potential directors may not be able to afford to participate without payment. This reduces the pool of people from whom you can choose and may limit it to those who are retired or of independent means.

If you want to make your board more representative of the wider community – in skills, age, gender, background – paying them will help. Remuneration also recognises not only the time commitment directors make but the skills they bring to your organisation. It acknowledges the personal liabilities they face, which are not the same as for unpaid directors. Volunteer board members are not personally liable in occupational health and safety matters. There are also differences in civil liability risk.Paying directors does not necessarily improve governance and the issue of accountability is critical, especially when the board is involved in making decisions about payments.

Not-for-profit reporting

Learn more about financial reporting requirements that may apply when you work with charities

Find out more

Search related topics