Foundation Operations: Board Issues-> Board Policies-> Board Compensation
Should board members be paid?
The IRS has ruled that a private foundation can compensate board members based on a percentage of the foundation's assets and not be “self dealing” (Letter Ruling 200135047), yet grantmaking health foundations are usually governed by volunteer boards.
In a survey of nonprofit organizations conducted by BoardSource, only 2 percent of 1,300 respondents compensated their board members. Fees are sometimes paid when a board member dedicates an unusually large portion of time to the foundation. In its research of board reimbursement and compensation for the forthcoming book, Foundation Management Series, 11th Edition, Volume II, the Council of Foundations reported the following based on survey responses from 702 foundations:
- Compensation for board service – in 2002, nearly three quarters of foundations did not compensate board members (75.3 percent). For those who did, the practice was more common among foundations with larger assets.
- Reimbursement for expenses – board members are often reimbursed for expenses associated with their board service (65.1 percent for expenses incurred to attend board meetings and 62.3 percent for other foundation-related travel).
- Compensation for professional services – one-third (33.6 percent) of the respondents have board members who provide professional services such as accounting, investment, legal and public relations. More than half of the respondents have board members who provide their services pro bono (52.1 percent).
As you consider this issue, check with your state's nonprofit incorporation statutes to see if board compensation is limited and, whether or not board compensation is allowed, clearly state the agreed-upon policy in your foundation's bylaws.
Bryson, Ellen and Andrew Schulz, "Board Debate: Voluntary or Compensated Boards?" Foundation News & Commentary, September/October 2003.
The Center for Public and Nonprofit Leadership, Georgetown Public Policy Institute, Foundation Trustee Fees: Use and Abuse (Washington, DC: 2003).
Council on Foundations, At Issue: Voluntary or Compensatory Boards -- Which Is the Better Policy?, Board Briefing, (Washington, DC: August 2003).
Council on Foundations, Determining Reasonable Compensation for Foundation Directors and Trustees, Guidance Memorandum From the Board of Directors of the Council on Foundations, (Washington, DC: December 2002).
Council on Foundations, Recommended Best Practices in Determining Reasonable Executive Compensation, Guidance Memorandum From the Board of Directors of the Council on Foundations, (Washington, DC: December 2002).
Draper, Lee, "A Dubious Legacy," Foundation News & Commentary, March/April 2001.