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Tuesday, June 5, 2012

Massachusetts Says Charities Shall Not Pay Their Boards

Nonprofit Boards have a lot of responsibilities including fundraising, hiring and overseeing the CEO, setting the vision for the institution, ensuring that the charity adheres to the law, ensuring that the charity fulfills is obligations to its stakeholders, protecting the charity’s assets and ensuring that the charity’s resources are used ethically and appropriately in fulfilling its charitable mission. As a general rule of thumb, they are not compensated for their efforts. Instead Board members are typically asked to make a financial contribution to the charity. In fact, more often than not, the charity’s biggest contributors sit on its Board. 

Although Board compensation is not illegal, it can call into question a nonprofit's financial integrity. The IRS seems to think it is a concern because it requires charities to disclose on their Forms 990 if they have paid their Board members. Recently, Massachusetts’ state Senate showed its disapproval of charities that compensate their Board members by passing a bill that would prevent such activity. Although the bill still needs to be passed by the House and signed by the Governor, the state’s Attorney General had this to say in support of it, “voluntary service by board members is the practice at the overwhelming majority of public charities, and for good reason. Compensation of board members raises concerns about maintaining board independence and ensuring the proper use of charitable funds.” 

At Charity Navigator we agree. In fact, if a charity pays its Board members their participation, then we deduct 4 points from the charity’s Accountability and Transparency score.

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