The business thrust of for-profit ventures and non-profit organizations (NPOs) varies greatly. For-profits actively pursue strategies to enhance shareholder value while NPOs owe their reason-for-being to their members and the community.
While many of the guidelines for establishing governance apply alike to both profit and non-profit ventures, the subject of compensation differs between those who seek to create profit and wealth and those who seek to assist or improve some element of society.
NPOs have one thing in common: their members and directors cannot make a financial gain from their investment of time and money. This includes social enterprises that are basically NPOs that generate surpluses for their good works, not profits.
The Globe and Mail’s “Report on Business” (August 12, 2009) commented that Canada has 84,771 registered charities that together reported donations of $10 billion for the previous twelve-month period for which statistics were available. It also reported that “charities are more market-driven than they appear. They got more of their revenue from the sale of things ($11.5 billion), for example, than they did from straightforward donations.”
One might think there is much to be said regarding the advantages of paying compensation at the board level of a venture. Offering compensation could make it easier to attract the most qualified individuals to an NPO board whose time has value.
Compensation should make it easier to hold board members accountable for their actions. But does it? Plenty of evidence across our society demonstrates that busy people with huge job loads or responsibilities find time to serve voluntarily when they buy into the vision, mission and values of an NPO.
The bottom line, simply stated, is it is illegal to pay compensation to an NPO board of directors in Canada. A 2006 study of the voluntary sector of Canada includes statistics showing that when asked about revenue allocated to governance expenditures, 90% of respondents reported an allocation of between 0% and 2% of revenue. Less engaged NPO boards had an even higher percentage who reported no allocation for governance expenditures for fees or expenses.
Regarding for-profit businesses, consider the following guidelines when setting up your first board:
For example, if at the start the president earns $80,000 per year, his or her daily pay over a 250-day year would work out to $320.00. Assume that board members meet four times per year and are expected to spend one day getting prepared for each meeting, and one day off and on between meetings dealing with company business. These 12 days at $320.00/day would work out to $3,840.00 or an annual stipend of $4,000.00
The matter of board compensation grows more complex as management becomes stockholders and grants or options are created. Regardless of the nature of the venture, boards should have a compensation committee made up of independent directors to review these matters and to make recommendations to the board.
Reynolds, N. (2009, August 12). Charity industry gets some needed scrutiny.
The Globe and Mail, “Report on Business”. Retrieved September 21, 2009 from v1.theglobeandmail.com/servlet/story/LAC.20090812.RREYNOLDS12ART1936/TPStory/TPBusiness/