Last updated 2 August 2022
This is an inquiry we get often from our NFP sector clients.
Remuneration of Board members in NFP organisations can take different forms, such as:
- Payment for work as board members;
- Payment as an employee of the charity; and
- Payment for services rendered to the charity (e.g. in a professional capacity).
Depending on the entity type, there may be restrictions under the Corporations Act or fundraising legislation. However, subject to the below, the ACNC Act does not prevent Board members from being remunerated.
While the ACNC Act does not prevent remuneration of Board members, the ACNC has in place Governance Standards that a charity must abide by[1]. The following Governance Standards would be relevant to this question:
- Governance Standard 1: requires charities to be not-for-profit and to work towards their charitable purpose[2].
- A not-for-profit is an organisation that does not operate for the profit, personal gain or other benefit of particular people. This can include its members, its responsible persons or their friends or relatives.
- Governance Standard 5: A registered entity must take reasonable steps to ensure that its responsible entities comply with the following duties:
- to act in good faith in the registered entity’s best interests, and to further the purposes of the registered entity[3];
- to disclose perceived or actual material conflicts of interest of the responsible entity (which is taken to include a related party transaction).
How can a Charity justify payment to its Board members?
In determining whether remuneration should be paid to a Board member (or members), care should be taken not to fall foul of these Governance Standards. In short, the Charity must be able to:
- Justify that the payment furthers the charity’s charitable purpose;
- Justify that the payment is in the charity’s best interests;
- Ensure that it avoids a conflict of interest (e.g. by having a board member determine their own remuneration).
Another important qualification is that payment to board members must be authorised under the Charity’s governing documents (e.g. its constitution).
When a Board member is proposed to be employed by a charity, it is wise to ensure that the engagement can be evidenced to be at ‘arms-length’ and at ‘fair-market value.’
Remuneration considerations from the ACNC
The ACNC has posed questions[4] a charity should consider when deciding whether to pay its Board members. These include:
- Are there any laws governing board remuneration that will affect the charity?
- e.g. fundraising laws in each state or corporations’ law
- Will board payments affect any current funding arrangements?
- e.g. are there conditions on funding that specify funds to be used in a particular way?
- Do the charity’s rules allow for payments to board members?
- Who on the board should be paid and what is the process for determining a reasonable payment?
- e.g. do all board members receive a payment? Are some board members paid more than others?
- Are there any additional expectations that may be placed on directors in exchange for payment?
- How will the board be accountable and transparent about payment?
- e.g. will it provide a remuneration report? Will members be consulted on payment?
- How should the charity determine the amount of remuneration?
- e.g. consult other similar charities? Use the services of a consultant to assist?
[1] S45-10(1) Australian Charities and Not-for-profits Commission Act 2012
[2] Reg 45.5(2) Australian Charities and Not-for-profits Commission Regulation 2013
[3] Reg 45.25(2) Australian Charities and Not-for-profits Commission Regulation 2013
[4] https://www.acnc.gov.au/tools/guides/remunerating-charity-board-members
