Is the payment of charity trustees inevitable?

I’m no governance expert, but I couldn’t help but take an interest in a recent news item about the Charity Commission’s open annual public meeting, where NCVO’s President, Lord (Robin) Hodgson of Astley Abbott is reported to have said “…I do believe it’s coming whether we like it or not.”  So, my question is: Is payment of trustees, even if only in large charities, inevitable?

(Note: I’m not looking at this from a regulatory perspective, if for no other reason than I’m not qualified. Current guidance on trustee payments from the Charity Commission is excellent and it’s here. Also, I’m not talking about payment of expenses, but payment for time.

Update: I’ve also had lots of feedback via email etc, including from the US – it’s in the comments below the blog…and its more interesting than my blog!)

What might be driving the move to paying trustees?
I wasn’t involved in the red tape review that I think shaped Lord Hodgson’s view on the matter, but the fact that the Charity Commission only allows payment in exceptional circumstance is clearly an issue for some: in short, the argument is that some (potential?) trustees will only carry the risk of this role if they are rewarded. These issues have certainly been aired: this excellent research from the Charity Commission is a good place to go for a considered view. By way of context, it reports 23 of the largest charities by income paid trustees in 2008. (Hat Tip: Tania Cohen)

I can think of a number of long-term changes in the external environment that would drive changes in attitudes and behaviour here:

  1. Professionalisation of the sector: the long-term shift towards the use of paid staff makes payment the norm. This norm is however tempered by the notion that professionalism is not the opposite of voluntarism, but is the opposite of amateurism. In other words, trustees think they deserve reward for their skills and knowledge, because the people they are overseeing do. This argument might imply that the leadership role of the board is more important than the stewardship role.
  2. Higher stakes: a number of charities now turn over more than £100m per annum; almost 5,000 turn over £1m. Ultimate responsibility for such complexity is perceived to be high risk – and as attitudes harden against risk taking – remuneration might be an acceptible compromise for some.
  3. Blurring of the boundaries: contracting with the public sector, adopting the habits and language of business via social enterprise models and the increase in ‘boundary-crossers’ are resulting in what academics call ‘structural isomorphism’: we are becoming more like the organisations in other sectors that we work with. And those organisations pay their non-exectutive directors. So the argument here is that trustees want comparative economic status.
  4. Greater levels of competition for a declining talent pool: I’m not entirely sure about the evidence here, but my hypothesis is that new public management led to an increase in public bodies, all of whom want trustees/non-execs. I think there is also a perceptional norm in the sector that the numbers willing to be trustees are in decline. Finally, I would hypothesise that the increasing interest of professional headhunters in placing trustees may be playing a role here (I have no evidence).
  5. It works? Not so much a change in the environment, but it’s worth asking whether the success of paid trustees might encourage other charities to follow suit. I’ve tried unsuccessfully to find published studies of the issue, but there are certainly examples where it is working, such as the Anchor Trust. This of course begs a series of different questions about the correlation between paid trustees, governance effectiveness and of course organisational effectiveness. I wont even speculate on the direction of causality should a positive correlation exist…

andertoons-15-todays-cartoon

But then again: 6 questions for advocates of payment
I can’t but help think that these arguments are based upon seeing the voluntary sector as a quasi-market, shaped by the same motivations and organisational dynamics as the private sector. It’s what Ramaswamy Sudarshan recently called the monetization of everything (by the way, this really is worth reading). So, before we assume any inevitability, I would like to ask some questions:

  1. Are (potential) trustees only motivated by money? NCVO, VE and Involve have just completed a two-year project – Pathways Through Participation – on what makes people get involved and stay involved. I’m happy to be corrected by the team, but I dont recall any mention of payment from an in-depth research programme. This was not, however, about trustees specifically. It’s worth noting that the work on boundary-crossers suggested some re-evaluate their values when coming into the sector.
  2. Is payment necessary to widen the pool of potential trustees to include those without time/money? I dont know, but the flaw in the argument for me is that payment is argued to be necessary for those with professional knowledge/skills – but aren’t these people those who need payment the least? And doesn’t the increasing interest in – and supply of – pro-bono skills negate the argument that payment is the only way to attract talent?
  3. What would be the impact on voluntary income? Donors are clearly comfortable with paid staff in charities (or at least that is my assumption given the ability of fundraising charities to employ paid staff). Would this shift if the people ultimately responsible for strategy and decision making benefited from their role?
  4. Would payment of trustees damage public trust in the charity brand? Voluntarism is a defining characteristic of the voluntary sector: and for some organisations, the trustee board are the only element of voluntarism in the organisation. If that goes, why should charities receive the special privileges they currently benefit from?
  5. What would be the impact on governance and management? This is the most difficult and intangible question to which I doubt it is possible to answer with confidence. I would like to see some studies about individual organisations and at a more aggregate level.
  6. Can the charities afford it? In a period of austerity, regardless of whether payment is a good thing, will that other defining characteristic of the voluntary sector – resource inadequacy – mean that this is a non-starter? Here’s a back of the envelope calculation: if the 453 charities with an income over £10m paid their trustees the same as Anchor,and we assumed a typical board of 12 trustees, that’s over £66m in costs. In the context of their expenditure this is tiny – less than half of one per cent of expenditure – so the argument might be yes, they can afford it. But is this nevertheless money leaving the sector?

You’ll find a list of pros and cons in relation to payment from a US perspective here. One American colleague said to me that “In the US it is still considered an abhorrent practice among the “governance experts.”  Which is to say that even if it is a good idea (not sure myself, but even if it is), it isn’t getting any serious airplay here.”

Some final thoughts
In writing this I am a tad worried about how little evidence I have brought to bear. I will try and do something about this and update the blog accordingly. Finally, I’m a trustee myself: my sense is that payment would fundamentally change the nature of the role and, for me, probably remove the enjoyment I get from being a trustee. I suspect many of those working in smaller organisations agree, if this research by DSC is indicative. Trustees in larger charities may well feel different – if so, I would love to hear from you.

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Karl Wilding Karl Wilding, Director of Public Policy and Volunteering, leads NCVO's volunteering, policy, research and campaigning work in the UK and internationally. With lead responsibility for shaping the external environment for the voluntary sector, he blogs about the big issues facing voluntary organisations.

6 Responses to Is the payment of charity trustees inevitable?

  1. Karl Wilding Karl Wilding says:

    I’ve had some comments from a couple of academic networks – so I thought I would paste them in below:

    As the performance expectations of directors of charities have become more onerous in the past 20 years, I think a strong case can be made for some standard of “reasonable” compensation to directors but there doesn’t seem to be much willingness to advocate for this or even discuss it. A case can equally be made that paying directors of business corporations has not resulted in better governance in the private sector.

    It’s a really interesting question. I am hoping that someone has done some serious research on this, but I suspect that there won’t be much. Compensating directors of charities for their service is generally prohibited or at least frowned upon. I believe that some charitable trusts pay directors for their service. I don’t know about hospitals.
    Non-charitable non-profits like trade associations sometimes compensate their directors.

    I would love to know if payment would make a difference in the willingness of directors to treat their responsibilities more seriously.

    Nathan
    http://GarberConsulting.com

  2. Karl Wilding Karl Wilding says:

    And I got this reply from Chris Cornforth,a governance specialist at the OU:

    If you put payment of trustees into Google scholar you get very few returns. The most promising is The Case for Non-governing Directors in Not-for-profit Companies – Journal of Corporate Law Studies, 2010 –

    On the legal issues surrounding the payment of trustees of charitable companies, see P Luxton, The Law of Charities (Oxford University Press, 2001),370-9. Also see M Klausner and J Small, Failing to Govern?: The Disconnect Between Theory and Reality in Nonprofit Boards, and How to Fix It

    My impression is that little serious research has been done on the issue. As you probably know many English housing associations now pay trustees, so you could also search on housing associations.

  3. Karl Wilding Karl Wilding says:

    Some more responses:

    DSC’s Ben Wittenberg asks who would set the salaries, or judge performance? A good question, particularly given the criticism over the role of private sector remuneration committees.

    Involve’s Simon Burrall reckons it might be justified on the grounds of widening access and increasing diversity, particularly for the low-paid. For me, that’s the most convincing argument I’ve heard. Julia Unwn makes a similar argument in relation to Housing Associations, arguing that poorer people lose more money when they act as a trustee.

    The more I think about this, the more I come to the conclusion that if paying trustees is the solution, then what’s the problem? Not enough trustees? Ineffective governance?

  4. Karl Wilding Karl Wilding says:

    Dave Renz from Midwest Center for Nonprofit Leadership in Kansas has highlighted this report by Francie Ostrower and published by the Urban Institute: Nonprofit Governance In The United States:
    Findings on Performance and Accountability from the First National Representative Study (Union Institute 2007).

    This is a representative study of over 5,000 nonprofit boards in the US: page 11 states (with my emphasis in bold)

    “Nonprofits in our study rarely reported compensating board members-only 2 percent did so. The percent is higher among larger nonprofits, reaching a high of 10 percent among nonprofits with over $40 million in expenses. The propensity to compensate was also higher among health organizations (4 percent) than nonprofits in other fields (2 percent). Bear in mind that this study was confined to public charities and does not include private foundations (which more often compensate).

    Although the percentage is so small, these data offered an opportunity to explore the possible impact of compensation on boards. We generally found no indication that compensating trustees promotes higher levels of board engagement. Boards that compensate were not more or less likely to be actively engaged in financial oversight, setting policy, planning, monitoring programs, or evaluating the CEO/executive director. They were no more or less likely to evaluate whether the organization is achieving its goals at least every two years. Compensation was negatively associated with levels of board activity in fundraising, community relations, and educating the public about the organization and its mission. Boards that compensate were more likely to be active to try and influence public policy, but this relationship disappears with controls for other variables. However, compensation was positively associated with attendance at board meetings, and this relationship held even after controls for other variables.

    We did not find evidence that compensating trustees help nonprofits attract board members with particular expertise. Boards that compensate were actually less likely to have members with professional backgrounds or expertise in management, law, or accounting, and no more or less likely to have members with expertise in the organization’s field of activity. Furthermore, compensation was not associated with achieving greater racial or ethnic diversity.”

    As Dave noted in his email to me, “these are significant insights, even though a study of this type has its limitations.” The findings on compensation may be based on only 100 responses, but the study design is good and as such I think they are worthy of our interest.

  5. Karl Wilding Karl Wilding says:

    And here’s a response from Rosie Chapman, ex-director of Policy at the Charity Commission turned consultant:

    Great post Karl – really interesting.
    I also looked up the position for public bodies. There were some 900 of these at the last count with about 12,000 board or committee members. Pay rates seem to be in the region of £300-£350 a day. With the open public services agenda I wondered whether this model and pay rate might gain some traction? Could this be the model adopted by the new British Waterway’s charity for example?

  6. Karl Wilding Karl Wilding says:

    And I had this response from George McCull, the President of Catalogue for Philanthropy in the US:

    One of the reasons there is almost no scholarship on this issue is that it is not a big issue (save perhaps for the individuals and institutions involved). Trustee compensation is rare in philanthropy, for very strong reasons: to begin with, only the largest institutions could afford it—fewer than about 5% have large enough budgets; second, many, perhaps most, of those are institutions with large boards requiring no special expertise among trustees—universities, colleges, schools, and major cultural institutions—with deep traditions of philanthropy (giving and volunteering) creating incentives for voluntarism at the trustee level—membership on a Board is itself considered rewarding.

    You are most likely to find it in the healthcare industry—hospitals and health maintenance organizations—with large earned-income revenues, at the borderlines of commerce, and with greater need for technical expertise at the board level. But even here in Massachusetts, with a constellation of world-class hospitals, trustee compensation among them is exceptional and frowned upon, with an Attorney General promoting legal prohibitions.

    George then sent me this, which is just as interesting!

    Actually the issue you have raised may offer an illuminating example of how the distinction between philanthropy and “nonprofits” works out as significant in practice. “Philanthropic” institutions—”private initiatives, for public good, focusing on quality of life, and engaged in public fundraising and volunteering” —almost never, if at all, pay their trustees, for reasons I cited. But they are fewer than 10% of “nonprofits” (this is what we found in Massachusetts, scrutinizing them individually by reference to their 990s and websites). We excluded from “philanthropy” institutions whose revenue comes exclusively from government and/or earned income, who are doing no public fundraising and reporting no revenue from grants and donations.

    The recently conspicuous example attracting public attention—i.e., of the press and the Attorney General—is Blue Cross/Blue Shield: a tax-exempt institution but really a nonprofit business, not philanthropy. Private foundations sometimes pay trustees, but that is generally frowned upon. Bottom line: extremely few, if any, philanthropies pay their trustees; where trustee compensation occurs it is almost certain to be among non-philanthropic “nonprofits”.