“Nonprofit organizations often struggle with the decision of paying board members for services they might otherwise purchase in the open market.”

By: Patricia H. McAbee

Nonprofit organizations of all sizes and descriptions need basic services to operate effectively and efficiently. While specific services vary among organizations, it is generally understood that they include financial, legal, and organization-specific services. In addition to services, nonprofit organizations also require products that range from equipment and facilities to office supplies. All of these needs must be secured in order to meet the mission—more often than not, with extremely limited financial resources.

The question often arises in nonprofit organizations regarding paying board members for services they provide. The very nature of the nonprofit corporation suggests that members of its governing board should receive no compensation for service as a member of the board. The only hard and fast rule that applies here is a legal one, which prohibits a board member from receiving compensation that is greater than the market value for a product or service that s/he may provide. According to the law, the ‘profit’ or revenues received over expenses may not inure to the benefit of any member of the board. Rather, all revenues are received and expended for the charitable purposes of the organization.

Nonprofit organizations often struggle with the decision of paying board members for services they would normally purchase in the open market. The common perception of the nonprofit board is that members should not receive compensation of any kind, or for any reason, from the organization they serve. While rendering services on a volunteer basis (without pay) by members of the board may be beneficial and desirable in nonprofit settings, it is not a requirement. In many organizations board members are sought because of their ability or willingness to provide services or products for free or reduced cost.

It is often desirable to have board members with specific expertise such as legal, financial, mission-related, etc. Such individuals may choose to provide a service as a donation up to a certain level and require payment beyond that. For example, an attorney may contribute his/her own legal counsel but require payment for more extensive services of their law firm.

In my thirteen years of experience as executive director of an arts council, I learned that paying board members for a service or a product should be handled carefully and judiciously. Quotes or bids serve to aid in establishing the market value of the service or product. If market value cannot be established using external sources, document the method for establishing the value. Print and sign a formal agreement – this could be a simple contract, a memorandum of understanding, a fee agreement, an estimate/quote, or other similar document. Clarify the terms of payment. Also, clarify the consequences of unsatisfactory performance. State who is responsible for what, and most importantly who is in charge. These are all common pitfalls that can create significant problems for an organization.

So when would it be appropriate for a nonprofit organization to compensate a board member? When the organization is in need of a service or product and chooses to purchase that service or product, it may make that purchase of service or product from a board member. The caveat is that the board member has the ethical, if not legal, responsibility to disclose his or her relationship to the organization. Further, the board member should never be paid more than the organization would pay a non-board member for the same or comparable service. Finally, the organization must ensure that this relationship does not damage the overall perception of the organization, or impair its ability to complete its mission in the community.

The board member can always volunteer services for which s/he would normally be paid. Similarly, if paid, the board member may choose to make a cash gift to the organization equal to all or part of the fees received, and enjoy potential tax benefits for the charitable contribution. Many times, this offers the best solution.

Patricia H. McAbeeis a Vice President at Custom Development Solutions, Inc. (CDS). CDS has become one of North America's best and most sought after fundraising consulting firms specializing in the strategic planning and tactical execution of capital campaigns for non-profits throughout the United States and Canada. More information on CDS can be found on the web at www.cdsfunds.com. If you have a fundraising question for, please call 800-761-3833 or send an email to lcs@cdsfunds.com.