At what point should not-for-profit organisations start paying fees to their board of directors?
John Langoulant seems to have found himself in an increasingly small minority.
As chairman of aged care provider Amana Living, he is not paid a fee, nor are his fellow board members.
That’s despite Amana being a large commercial undertaking with 30 retirement villages and nursing homes, 1,600 staff and annual revenue of $124 million.
It’s also despite most of Amana’s peers in the aged care sector deciding in recent years to start paying board fees. Juniper has paid board fees since 2018.
Its chair, Maree Arnason, receives a modest $20,000 per year.
Brightwater Care Group joined the trend in 2019, when its members agreed to start paying board fees.
Brightwater chairman David Craig gets $40,000 per year.
It has been paying board fees since 2005 and its chairman gets about $120,000 per year.
Outside the aged care sector, some other well-known not-for-profit groups have taken similar steps.
The Chamber of Commerce and Industry of WA decided in 2019 to start paying board fees, with effect from January 2020.
Chair Nicolle Jenkins receives $40,000 per year.
Disability services group Rocky Bay is the latest charity to follow suit, agreeing at its 2020 AGM to start paying fees to its non-executive directors.
It has not disclosed the amount to be paid, beyond saying the available fee is “relatively modest”.
Looking at these examples, there appears to be a very strong trend. However, a large annual survey undertaken by the Australian Institute of Company Directors and consulting firm BaxterLawley suggests otherwise.
BaxterLawley managing director Penny Knight said there were a lot of misconceptions regarding board remuneration.
“In reality, the data doesn’t support the notion that the number of boards paying directors is increasing,” Ms Knight told Business News.
“And this is very reliable data.”
The AICD survey has gone to more than 1,300 not-for-profit charities every year since 2013.
The 2020 survey found that only 18 per cent of respondents paid board fees.
This proportion has not changed significantly over the past decade, ranging between 13 per cent and 19 per cent over this period.
Ms Knight, who undertakes the survey for the AICD, said the incidence of pay was correlated with the size of organisations.
“As organisations grow and merge, they think about paying,” she said.
But even among the largest charities, with annual turnover above $500 million, only 52 per cent paid board fees (see chart, page 6).
The proportion falls gradually with annual turnover, to just 1 per cent of directors at the smallest charities.
For instance, organisations in aged care and disability services are typically larger and growing faster and more likely to pay board fees compared to those dealing with domestic violence and homelessness.
Ms Knight said her research also showed that director pay was correlated by hours of work.
“However, we expect that people get paid because they work more hours, not that they work more hours because they are paid,” she said.
The shift towards longer hours is highlighted in the AICD’s latest NFP Governance and Performance Study.
“Directors are devoting extra time to each NFP board role, a consistent trend over the last five years,” the study found.
“As in other sectors, NFP board workloads are rising as regulatory and community expectations of boards increase and as governance becomes more complex.”
The latest study also cast doubt on the benefits of paying board fees.
“This study has consistently found each year that NFP governance is at least as good as for-profit governance, despite an absence of, or lower, NFP director fees,” it states.
“In many cases, NFP boards have directors who also serve on for-profit boards, meaning the same governance expertise is applied across sectors.”
Ms Knight said she gained more insights from focus groups she ran with not for profits, where board pay was often discussed.
“Many people think directors have had privileged executive careers and should give back and not be paid,” she said.
“On the flip side, there are people who can’t imagine why anyone should be expected to do a job like this and not be paid.
“More recently, I’ve also seen a ‘corporate ego’ driver.
“As not for profits get larger and more commercial, they think having a volunteer board makes them look a bit lightweight.
“None of these are a sound basis for making this kind of business decision.”
Mr Langoulant said his sense was that more not for profits were paying board fees, but he was keen to see more evidence. “It is an open question at Amana,” he said.
“So far, we have landed on the position to not go down the remuneration path.”
Mr Langoulant joined the Amana board in March 2019 and became chair in October of that year.
It added to a diverse portfolio of board roles, including chair of Infrastructure WA, superannuation fund GESB, Australian Gas Infrastructure Group, and the Rottnest Island Authority.
“The Amana board is one of my busiest, but I took it on knowing there was no remuneration,” Mr Langoulant told Business News.
“My views on being a non-executive director is that I will make a contribution back into areas where I’m really interested, and I’m not necessarily driven just by rate of pay.”
He believes many people have the same approach.
“In all of my association with not-forprofit boards, I don’t see the lack of remuneration as a major hindrance to getting quality people,” Mr Langoulant said. “
People are still putting their hand up and saying they are prepared to make a contribution.”
Amana’s current board members include high-calibre business executives such as Iluka Resources general counsel Sue Wilson, Hawaiian executive director Damian Gordon, and Deloitte partner Jennifer Delany Vaessen.
Mr Langoulant said Amana’s main focus when recruiting new board members was having people with the right skills. It also has a preference for practising Christians – reflecting the group’s origins in the Anglican Church – but that was not mandatory.
“We will always put the requisite skill above any other criteria,” he said.
Mr Langoulant acknowledged the skills and time contributed by Amana’s board members had real value.
Another large not for profit that doesn’t pay board fees is aged care and disability services provider Avivo, which has grown to have annual revenue of $86 million.
Chairman Angus Buchanan said he held discussions with board members on this topic and it had been discussed at board meetings.
“The decision was made that roles are voluntary,” Professor Buchanan said.
He noted that reasonable expenses such as travel were supported, a common practice at boards that did not pay fees.
Brightwater Care Group decided to introduce board fees after a review by its governance sub-committee.
It concluded that payment of reasonable director fees to existing and future board members would assist Brightwater attract and retain the best available people for positions of substantial responsibility.
It also concluded this would drive increased performance of the board as a whole.
Chairman David Craig said this decision also reflected contemporary thinking on the remuneration of boards with charitable purposes that were responsible for large and diverse operations.
Brightwater obtained approval from its members at the 2019 annual general meeting.
Mr Craig noted that directors did not participate in the vote at the AGM.
“The quantum of the remuneration was tested through external market data and independent consultants,” he said.
The total amount paid to Brightwater’s 10 directors is currently $290,000 per annum.
The chairman receives $40,000 and each director receives $25,000.
Other not-for-profit organisations have gone through a similar process but arrived at different conclusions about the appropriate level of board fees.
Baptistcare, which has an eight-member board, pays $30,000 per annum to its chair and $15,000 to its directors.
Chief executive Russell Bricknell said the group introduced board fees to attract and retain high-calibre individuals who could bring significant experience, skills and diversity to the organisation.
Russell Bricknell says fees attract the best talent.
“Remuneration recognises that knowledgeable professionals who can add value to our board need to be compensated for their time commitment and the level of responsibility they assume as directors,” Mr Bricknell told Business News.
“Strengthening our ability to respond to the increasing complexity of the aged care sector with strategic thinking and robust decision-making aligns with our vision to be Western Australia’s leading aged care provider.”
“Their recommendations were based on national and WA research and benchmarking,” he said.
“Final remuneration was based on the complexity of our organisation, the number of board positions, the diverse range of expertise and experience required, and the time commitment for the chairman and directors.”
Juniper said it determined its board member fees based on benchmarking against other not-for-profit, community and church-based entities in WA and other states.
Its chair is paid $20,000 per annum and other board members are paid $10,000. Committee chairs are paid a small additional fee.
The aggregate amount paid to Juniper board members was $100,832 in FY20.
Juniper pays relatively low board fees despite being similar in size to Brightwater and substantially larger than other church-based aged care providers such as Bethanie, MercyCare and Baptistcare. Bethanie sits at the other end of the spectrum.
Its chairman, retired investment banker Peter Gibbons, was paid $97,000 in board fees in FY20 though he was chair for only part of the financial year.
Former chairman Bruce Davis was paid $121,042 in FY19, which provides a better guide to full-year fees. Its other board members are each paid around $70,000 per year.
These include Brookfield Infrastructure executive Murray Cook, architect Kylee Schoonens, and Churchill Consulting director Todd Mairs.
Total payments to non-executive directors in FY20 amounted to $535,000.
The aged care group has been paying board fees around this level for the better part of a decade.
In FY13, for instance, then chairman Barry Honey was paid $110,000 and the board was paid $517,500 overall.
Christopher How says directors are selected according to skills.
“This means they spend a lot of time and energy getting to know and understand our business so they can make a significant contribution to our strategy.”
He said board fees were initially set by an external adviser in 2005.
“On occasion, the fees are reviewed externally to ensure remuneration is fair and equal to the skills that directors bring to the board,” Mr How said.
Many not for profits turn to Adelaide-based McGuirk Management Consultants when they are looking for benchmark data.
McGuirk’s latest board remuneration survey included data from 161 not-forprofit organisations.
The median fee for chairs was $45,000/year and for other directors it was $23,170/year.
Despite having a well-paid board, Bethanie has not been assured of a positive financial outcome.
It incurred a $7.9 million loss in FY20 on revenue of $128 million.
To put this in context, net profit is just one measure of performance.
Bethanie, like other aged care providers, has highlighted its cash position: net cash from operations increased to $23 million in FY20.
Nonetheless, it aspires to achieve profitable growth.
Its strategic goals include “profitable revenue of $180 million per annum by 2023”.
While Bethanie pays higher board fees than its peers, it is notable the group is very transparent in its disclosure.
Bethanie’s annual financial statements specify the exact amount paid to each director, similar to the disclosure by ASX-listed companies.
These groups have provided further details, including the amount paid to individual directors, in response to requests by Business News.
One group that chose to not provide further details was Silver Chain Group. Chief executive Dale Fisher said the group met its reporting requirements by publishing the aggregate remuneration of ‘key management personnel’ in its annual report.
This amounted to $4.6 million in FY20, an increase of 37 per cent over the prior year.
Mr Fisher noted that Silver Chain’s board remuneration was aligned with aged care providers of a similar type, size and revenue, and was regularly reviewed by the board’s remunerations committee.
CCIWA engaged consulting firm Lester Blades for advice prior to introducing board fees.
Its report concluded that boards were facing intensive scrutiny and accountability, requiring increased investment of time by directors.
It also concluded that offering remuneration to directors meant a broader cohort of people would be available to take up the role.
CCI also noted that the workload commitment of its board was significant, with directors required to attend an average of 20 board, committee, and general council meetings a year.
Its chair is paid $40,000 per year and other directors are paid $20,000, with an extra $5,000 if they chair one of the board committees.
The maximum amount payable has been capped at $290,000.
CCI said its fees were below the median-average point for directors on a similar-sized board, sitting just above the 25th percentile.
To put this in context, CCI generated annual revenue of $24 million and an after-tax surplus of $1.3 million in FY20, indicating the substantial scale of its operations.
The not-for-profit sector in WA includes some of the state’s largest businesses.
All these groups pay substantial fees to their board members, in keeping with their commercial focus, though their disclosure is highly variable.
CBH, which has annual income of more than $3 billion, pays its chairman about $200,000 per year, while its board members have a base fee of about $103,000 per year.These figures include superannuation contributions. Some CBH directors earn substantially more. David Lock, for instance, who chairs the audit and risk management committee, was paid $131,399 last year.
St John of God Health Care is much less transparent. Its annual report only discloses total remuneration to key management personnel.
It declined to disclose actual fees paid to individual board members but did tell Business News the aggregate amount paid to its board in FY20 was just more than $1.1 million.
This includes superannuation payments and fees paid to experts who are not board members but sit on some of its board sub-committees.
A spokesperson said St John of God paid its board members to ensure it attracted the appropriate skill mix and expertise.
Its board is chaired by former WA governor Kerry Sanderson and includes a mix of medical and business executives, including Azure Capital’s Adrian Arundell, PwC’s Justin Carroll, and hotelier Peter Prendiville.
The aggregate amount paid by SJOG is very close to the amount paid by HBF to its board members.
HBF has included a detailed remuneration report within its annual report since 2018.
Chairman Tony Crawford said there was no obligation to provide this information, but believed such transparency aligned with the group’s corporate values.
It shows Mr Crawford was paid $272,000 in FY20 while other directors were paid up to $170,000. The annual report also detailed increases in board fees.
Mr Crawford’s fee increased from $237,000 to $284,000 from November 1 2019 while the base fee for other directors increased to $123,000. Directors were paid extra for chairing or joining other board committees.
The fees paid by HBF are comparable to those paid by many ASX-listed companies.
But for good measure, its worth noting they are a long way short of the fees paid by WA’s largest companies.
Its annual report states that total remuneration for its 15 councillors was $468,911 in FY20 but provides no details.
The member-owned group said it did not publish individual remuneration, except where legislatively required.
This applies to its subsidiary, RAC Finance.
Its financial report specifies the remuneration of all directors and executives, with chairman Alden Halse paid $15,470 in FY20 and six other directors paid about $8,200. Remuneration of other subsidiary boards is not publicly disclosed.
Ms Knight said not-for-profit organisations that chose to introduce director remuneration should do so in tandem with other changes.
“My advice is always, if you are going to pay, do it as part of an overall strategy to improve governance performance,” she said.
This should include creating or updating directors’ job descriptions, Ms Knight said, being clear about expected participation in sub-committees, and defining the overall time input required, including pre- and post-meeting work and site visits.
She said directors should be required to keep up to date with developments in the sector in which the NFP operated, and in governance practices in general.
These requirements should also be specified and can be supported by paying for resources and training.