Can I Pay My Non-Profit or Charity Board Directors?

Entering into the murky waters of this question always makes me very nervous. In truth, there is no clear answer to this question and it very much is a case of “it depends”. I am going to write this article from the point of view of someone living in Ontario Canada as these are the rules I am most clear with.

As a CPA, and a longtime volunteer, I always said “no” to anything that could be deemed as “grey”. I would always encourage individuals to reject paying their board members. It just makes me nervous. However, I thought I would delve into this a bit more to see if my viewpoint, was unreasonable.

Answer Seems to Be It Depends….

Digging into this a bit more, seems to only expand my confusion.

It depends not only where you are, but if you are a non-profit or a charity. It depends on your specific by-laws. It depends on what you want to pay them for. Paying them a stipend to sit on your board is a very grey area and for example if you are a charity in Ontario, Canada you cannot get your letters patented approved if you are paying your board even for services rendered ¹, however this changes if you are a nonprofit.

In most cases nonprofits can pay them a reasonable amount for services rendered, generally. Universally, it seems you can pay individuals for expenses incurred. This means if I spend money or pay for something for the organization out of pocket, I can be reimbursed. However, there are some organizations that even prevent this in their bylaws. They want no money exchanging hands between a board director and the organization.

What Seems to be a Universal Truth…Almost…

In principle, nonprofits do not pay our board directors. Except for when we do. There are certain bigger organizations that pay:

• a. Stipends to the individual for their board service
• b. Stipends to the individual’s company to “pay for their time” away

Bigger organizations want “good” members and paying for their time is seen as a requirement of this. So money, size and power, allow you to bypass this law, (or afford the legal experts who can argue WHY you should be allowed) but for smaller organizations, who have trouble recruiting board members it is generally deemed not allowed. Confused yet?

Since, I am not a lawyer, I thought I would ask ChatGPT for its legal opinion. It too seemed to be confused. It told me:

“The legal framework for nonprofits in Ontario, as outlined by the Not-for-Profit Corporations Act (ONCA), does not explicitly prohibit the compensation of directors but emphasizes governance, accountability, and transparency regarding such arrangements. Nonprofits are guided by their bylaws and the specific provisions of the ONCA regarding the roles, responsibilities, and qualifications of directors, including how they can be appointed, resign, or be removed from their positions​​​​​”​.

Where Lies the Problem

The sticky points in this conversation are that generally, as a director you approve these “stipends” and in the end, there is no one to really say “no” to you. There is no one to have oversight, no one who can independently say that this is good or bad, fair or not fair. It comes down to an issue of internal controls and who is able to approve a board member’s compensation, that is truly independent of the organization.

Some groups get around this with a volunteer committee of outside experts who “approve” this pay, but to pass it into being can really only be done by a board member. So we are back to the circular argument.

Why Would I want to Pay My Board Members Anyway?

If you paid your board members, recruitment would certainly be easier. People would take the responsibility more seriously and perhaps spend more thoughtful time thinking about the impact of decisions. This is why the big organizations do it.

Will We Ever Move Towards Clarity

The latest round of legislative changes in Ontario was done to help create clarity for the members of organizations. I hope that in the future, we can create more clarity around the issue of compensating board directors.

If this question comes up in your organization, please, please consult a lawyer. Also, if you can afford a good one, or a specialist (read–an expensive one), please do so as that as it might change the answer you get. 😉

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1 https://www.canadiancharitylaw.ca/blog/cras_view_of_compensation_of_directors_of_registered_charities/