Question from a new Executive Director: Between the death of the prior director and the date I started, my center had a board member who really stepped up and made sure things ran smoothly. Now the board is discussing how she should be paid. Is it okay to do that this late in the game? She finished her work several month ago.
Answer: The matter of payment to a board member, especially retroactively, is complicated. The work you describe took place over two separate federal fiscal years. It is too late to charge that back to last year’s grant, and it may not be allowable (more about that in a second) so the first question is: What do you want to do and do you have discretionary funds to do it? Whether you pay a contracted amount or purchase a gift to say “thanks” you probably are best off to use discretionary funds. Especially if you use federal funds, though, consider these other issues:
- Does your state allows this practice? Some states forbid compensation for non-profit board members, even for providing a service.
- Board members are not expected to benefit personally from their affiliation with the non-profit organization. On the other hand, you had a board member who stepped up in a crisis and spent much more time than a board member typically would, in order to assist the organization after the death of the founder and executive director. S/he should not suffer financially for providing a very critical support.
- Did you follow your own policies regarding the procurement of a contract and the procurement of board member specifically? Did you handle according to procurement regulations for federal funds if you are using grant dollars? Since the board had a sudden vacancy in leadership, they had the right to bring someone in to handle the situation immediately and perhaps until an executive director could be hired. In that emergency, you should be fine with this use of funds at least immediately after the event.
- Was this decision documented in board minutes? If not, it might be wise for someone to detail how the decision was made and keep that for the record. It is not typically acceptable business practice to decide on compensation after the fact. Hopefully there was discussion up front regarding a contract, the rate of pay, the maximum to be paid and so forth. If not, an actual contract payment is more difficult to justify.
- The next question is whether the proper safeguards against conflict of interest with a board member were taken. Typically this would include checking prices with two other consultants to assure that the amount charged is “reasonable”. We also recommend that the board member either resign from the board or take a leave of absence from the board while providing a service to the organization. (I know it is too late for your situation, but consider this policy in the future.) This assures the board’s ability to oversee the contract without the apparent or actual conflict of interest with the person still on the board.
- Should a non-profit board member ever be paid for a service (as opposed to reimbursed for an actual expense)? Generally they are not compensated for serving on the board, but might receive compensation for work done for the organization. The payment typically would be outlined in a contract and must be reported to the IRS on a form 1099-MISC if it exceeds $600 in the year.
- Your bylaws should be reviewed, as they may prohibit or limit compensation for board members. (Or they could be silent on the subject.)
- You will also want to check with your Secretary of State’s office to make sure that a non-profit board member receiving compensation for service in your state doesn’t lose immunity in lawsuits.
The non-profit board member has a duty to preserve the public trust. If you feel anyone in the public will protest the payment to the board member you must tread carefully. Addressing these points will assist you in that process.