Lately, I’ve gotten a number of questions about the legality and ethics of paying board members. In a few cases, this was just folks wanting to know the basics and the best practices, but for most, it was a question rooted in an earnest desire to know what was “allowed” as they attempt to better recognize the significant time and responsibility that their board members hold within the organization.
Let’s face it: being a nonprofit board member is a significant responsibility that takes a lot of time. Board members are the moral “owner” of the organization and bear the responsibility for ensuring the organization and its resources are stewarded legally, ethically, and efficiently in service to the organization’s mission.
For decades, the nonprofit sector has operated on the bedrock principle of volunteer leadership, that board members should lead without receiving compensation for their time and expertise. It’s traditionally accepted that board members should never cost the organization anything, only contribute to the bottom line through time and donations. There are plenty of good and proper reasons for this, which we’ll get into shortly. But increasingly, as the demand for board service and for more diverse perspectives around the board table increases, this principle is being brought into question.
The Traditional Best Practice: Why We Don’t Pay
MNA’s Principles and Practices of Nonprofit Excellence clearly states that volunteer board service is an industry standard generally expected of all nonprofits. It’s considered an essential practice for the following reasons:
- Public Trust & Stewardship: Nonprofits are stewards of public and donor dollars. There is a deep-seated expectation that these funds go directly toward the mission. Using organizational resources to compensate board members has historically been viewed as not serving the mission, potentially eroding public trust in the organization.
- Conflict of Interest: Volunteer boards are seen as inherently more objective, with less chance for conflicts of interest or private inurement. When a board member’s personal compensation is tied to their position, that perception (and reality) of objectivity is more questioned.
- Volunteer Immunity: Under Montana law (specifically MCA 27-1-732), volunteer directors enjoy significant protection from civil liability. Once a director is compensated (beyond simple expense reimbursement), they may lose this statutory “volunteer” shield.
The reasons above also apply to why employees or regularly used contractors of an organization should not be voting members on the board. Employees or contractors aside, why might reimbursement or compensation for board service now be on the table for volunteer leaders?
When “Volunteer Only” Becomes a Barrier
While the traditional model has served us well for decades, we have to be honest about its limitations. If board service is strictly a volunteer endeavor, we inadvertently create a “pay-to-play” system.
When we say a board position is “unpaid,” we are making an assumption about that individual’s financial stability. For many community members—particularly those from lower-income backgrounds or younger generations—the “cost” of board service isn’t just zero dollars, it’s the cost of childcare, the cost of unpaid time away from work, and the cost of travel. It’s free time that some people simply can’t afford to offer in service to a nonprofit organization.
If our boards only consist of those who can afford to work for free, we risk missing out on the lived experiences of the very people our nonprofits are often trying to serve.
The Recruitment & Accountability Argument
Beyond equity, there is a pragmatic recruitment challenge. It is hard to find qualified, earnest, and interested people to serve on boards, especially given the heavy responsibility that the role actually entails. In 2022, MSU Extension reported that for every nonprofit in Montana to have the required 3 board members (let alone any additional!), 1 in 22 adults in Montana has to serve on a board. That’s a heavy lift made heavier by not being able to compensate board members for their service to the organization.
As nonprofit management becomes more complex—requiring high-level expertise in law, human resources, finance, and technology—the competition for board members is fierce.
Some argue that any type of reimbursement or compensation professionalizes the role. It moves the needle from “helping out when I can” to a clear, contractual expectation of performance, attendance, and accountability in service to the mission.
In some sectors (like healthcare or housing), nonprofits are competing directly with for-profit boards for the same pool of experts, and the for-profit boards offer compensation. Nonprofits are not able to compete at this level of compensation without creating a clear conflict of interest, but it’s possible to leverage the call to service while finding middle ground on competitiveness.
Threading the Needle
From my role and perspective, I increasingly believe in a balanced approach that prioritizes mission while remaining open to evolution. The “best practice” isn’t necessarily a permanent “no” to compensation; it is a commitment to ensuring that every decision made by the board is in the best interest of the mission, not the individual.
If your board is feeling the tension between traditional volunteer service and wanting and/or needing to incentivize service differently, consider these steps:
- Robust Reimbursement: Ensure you are at least covering the costs of service. Pay for travel, provide meals during meetings, and offer to cover childcare or eldercare expenses. This is not “pay” and does not pose a threat to the organization losing its ”volunteer” liability shield in Montana. It simply removes a barrier to service.
- The “Stipend” Model: Some organizations are exploring modest stipends, defined clearly in policy, for board members or for those with specific leadership or committee roles, often including leading on equity, inclusion, or diversity efforts. This might also include offering scholarships to youth board members.
- Transparent Dialogue: If you do choose to compensate, be radically transparent. Bolster policies around who, how, and why board members are compensated and stick closely to those policies. Disclose it on your Form 990, have a clear Conflict of Interest policy in place, and be ready to explain the “why” to your donors.
Regardless of where you are on this subject, having a deliberate conversation with your Board and staff leadership about how you can best incentivize and honor engagement and service is never a bad thing. If you want to learn more about statutory requirements, we advise you to consult an attorney – our Partners for Good Directory is a good starting point.
AND, if you’ve found a good model for board engagement, we’d love to hear it and share it with our members. Please send it our way!
