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Red Alert – Test Alert A – July 12 expiration
Red Alert – Test Alert A – July 12 expiration
Overheard in a nonprofit’s office: “It’s so hard to find good board members. It’s going to be really difficult to fill these board openings.”
If your organization struggles each time it needs to fill a board vacancy or does not always come up with the candidates it desires; it may be time to consider creating a board compensation program.
Add up the pluses and minuses
Board member compensation comes with several pluses and minuses your nonprofit should consider. Different organizations might assign different weight to each of the factors.
On the plus side, offering compensation could help attract board members with specialized expertise, such as fundraising or a well-regarded community presence. It also could give you an edge when courting potential board members who would receive generous compensation from for-profit organizations for serving on their boards.
Compensation could be in order, as well, if your board members are expected to invest significant time and effort, or if your nonprofit has a business model that competes with for-profit organizations, such as a nonprofit hospital. In addition, providing compensation can help create an obligation to perform on the board member’s part and promote professionalism. This also might:
Board compensation also comes with several minuses. In general — and this is a big one — it can look bad. Donors expect their funds to go to program services, and board compensation represents resources diverted from the organization’s mission.
Further, there are IRS and legal implications. The IRS looks carefully at whether any arrangement could create a conflict of interest. And, board members receiving compensation of more than $10,000 aren’t independent members of the board by the IRS definition. Reimbursing for expenses under an accountable plan is not considered compensation for measuring independence. Also, in some states, volunteer board members are protected from legal liability, while compensated members may not be. So you will need to check on your state’s laws.
Launch a compensation program carefully
If you decide to compensate board members, do it correctly. First and foremost, the compensation arrangements must comply with the Internal Revenue Code’s private inurement and excess benefit regulations, as well as the IRS rules about “reasonable compensation.” Failure to do so can result in steep excise taxes, penalties and even the loss of your organization’s tax-exempt status.
Independence is indispensable when setting the amount of, or formula for, board compensation. It should be set by independent directors (who aren’t among those to be compensated), or an independent governance or compensation committee, with insight from an independent consultant. The amount should be comparable to that paid by similar nonprofits, as determined by compensation surveys or other data. Whoever sets the amount should be guided by a formal compensation policy.
The policy should include clear objectives outlining how compensating board members pays off for the organization (for example, by allowing it to attract a member with financial expertise). It should specify which board members are eligible for compensation (the chair, the officers or all members) and how compensation is structured (for instance, flat fee, retainer or per-meeting fee).
The policy also should address expectations for the board members in exchange for their compensation. Expectations can be described, for instance, in terms of number of meetings attended, hours worked or qualifications and experience.
Finally, document, document, document. You’ll want written evidence of a formal board vote approving the policy and the compensation amounts, related discussion and copies of the data the board relied on to make the decisions.
Leave no loose ends
Making a shift to a board compensation program is a major change. Your preparation also should include checking to see how other nonprofits with compensation programs handled communicating the change to the public, which can help you develop your own communication plan.
Be sure to seek advice from an attorney who’s familiar with laws governing nonprofits in your state. And you may also want to get feedback from supporters and donors before making a final decision.
Whether an executive on staff or a member of the board, new to the organization or a long-time veteran, a nonprofit leader sometimes faces tough challenges that a formal development class will not address. But according to the nonprofit Community Resource Exchange (CRE), learning on the job itself can be a rich source of leadership and management development. The CRE advocates two self-coaching opportunities that lean on resources you can find in yourself, within the workplace and among your networks.
The CRE’s first technique is a method known as “reframing.” It refers to the ability to shift your perspective and unlock a fresh approach to problems.
The organization also urges leaders to follow what it calls the 1-2-3 steps, which target low-hanging fruit first. This approach calls for beginning with the first few, relatively easy actions you can take to address a specific challenge. The idea is that these initial steps will help move you from understanding the problem to taking action and accomplishing real change.
These strategies can work, for example, to reframe a problem familiar to many nonprofits — the lack of the strong accounting systems and staff needed to ensure the accurate and timely reporting required for continued funding of your organization.
You could reframe this situation by shifting staff from other areas of the organization to shared responsibilities in finance, thus encouraging managers to think beyond narrow roles. Would involvement of a board member or volunteer supply the manhours and controls you’re missing? You also can get past hiring the additional person you can’t afford by trying to improve the processes in place, and by inviting and seriously considering creative suggestions from your staff.
From here, you can identify the 1-2-3 steps to get the ball rolling. For instance, you might establish a team from various areas of the organization to outline what needs to be completed on a project and when. Are there tasks that should be prioritized to satisfy government and grantor requirements? Are there other nonessential recordkeeping tasks that could be minimized or eliminated? You also could obtain information and pricing from professional outside accounting firms that specialize in this type of work. Then compare those costs with providing accounting in-house.
The CRE also has applied its suggested strategies to the challenges of managing differences. Imagine you’re dealing with several diverse groups that use your library’s services. Reframing would shift from viewing the different groups as a hodgepodge to seeking common ground among the personalities, demographics and needs. Are these groups all from the local community? Do they all need access to the programs in person? Are they all readers? You also could move from trying to achieve uniformity of interest to mining their diversity.
Easy steps might include convening all of the relevant parties to develop an initial plan for priority activities in the coming year. How best can these groups interact? Possibly, you could bring the children from Story Hour to share an activity with the Writers’ Group.
You also could take time to learn more about strategies for managing differences by reading relevant books and articles, meeting to share what you’ve learned, and planning how to handle future interactions with the various groups that benefit from your services.
The most effective leaders always encourage their employees to seek more knowledge and then lead by example. Employing the methods above can help you continually hone your leadership and management skills, even when you don’t have the time or money for formal development.