Paying trustees – exploring some knotty questions. A thought experiment

Introduction

There is a lot of talk about paying trustees. This blog is a thought experiment about what would happen if the Charity Commission (for England and Wales), or any of the other charity regulators in the UK, removed the restrictions on paying trustees. In other words, it's as easy to pay a trustee as a member of staff. What would happen, and what would the issues be? Here are some knotty questions if there were a free market in paying trustees

1. Who would be attracted to a trustee role by payment?

The great unknown of paying trustees is who would apply. The totemic belief of some in the sector is that paying trustees is the gateway to a nirvana of trustee diversity. The evidence for this is partial. It is most probably the self-employed who would be attracted to be trustees, and it could just be another form of income for them. Four boards at £5k a year is not to be sniffed at. However, paying trustees could also make it much more attractive to the early-retired or semi-retired. The irony is that paying trustees could bring a rush of over-60s to be trustees to fill their days or top up their pensions!

2. Would small charities be the big losers from widespread trustee payment?

Let’s imagine that a board member typically gets £5k a year and the chair and treasurer get £10k a year. So a board of 10 would cost about £60k a year (2 x £10k, 8 x £5k). Even at half that payment, it would still cost £30k. If the typical cost for a board of 10 trustees is £60k a year for a £10 million charity, then the overall cost is negligible. But for a £500k charity, that is over 10% of the total cost, and equivalent to several members of staff. So it’s a much bigger burden to pay trustees for a smaller charity.

3. Might micro charities be the winners?

There is a raft of charities (the majority) that don’t have any staff. There comes a point at which trustees do more and more, and thoughts turn to hiring a staff member. At present its very difficult for trustees to shift to being a staff member (because of the Commission guidance). If trustees could more easily be paid, then the chair, or a trustee, could be paid to do more work, say a day a week. In this way, the ‘bump in the road’ of hiring staff could be smoothed out as trustees could be paid to do more and make the growth transition less painful.

4. How would trustees actually get paid – day rate or lump sum?

Staff get paid for working an agreed number of hours each week. On what basis would trustees be paid? A lump sum for the role, or a day rate for the service. The former is how most of the board members I have heard get paid. The latter is how local councillors get paid. But if you pay by lump sum (eg £5000 a year for being a trustee), then the danger is that some trustees may do 5 days a year for their £5000, and others 20 days a year. Would that work, or does it cause greater discontent when some trustees work much harder than others?

5. Does it matter if trustees do it for the money, not the cause?

I don’t mind admitting that I have salaried jobs in charities that I thought were good for my CV, where I didn’t particularly care about the cause. That’s common in many jobs – good for CV-building or just paying the bills. If trustees were paid, would there be a rift in boards between those who cared about the cause and those who cared about the money? For me, it's not a problem if the trustee calibre is there, but it crosses a line for others.

6. Would we see trustee payment competition?

If there were a free market in paying trustees, would there be a spread of payment levels (just as there is in CEO salaries)? The less popular causes people need to pay more, the more popular causes pay less. And would the typical trustee pay level increase over time? (just as it has done with CEO and senior staff pay). I was told the other day that the typical Footsie 100 chair is paid £300k a year (for around one day a week). I doubt we are heading for that much!!

7. Do all trustees need to be paid, or are all paid the same?

If a payment were introduced for a board, would all trustees get paid? Is it possible to imagine that somebody decides not to accept payment when their fellow trustees are paid? Equally its easy to imagine that a chair is paid more than other trustees. But if a trustee was paid for particular skills, might one trustee be paid 5 or 10 times what another trustee was paid? Or some are paid while others aren’t paid at all.

8. Would the size of boards decrease over time?

Would trustee payment be a reason to decrease a board’s size? If a charity felt it had to pay and had 6 trustees, not 10, that would save £20k a year, which is not to be sniffed at for a small charity.

9. Would trustees be employees or self-employed?

It’s a minor point, but would paid trustees be technically staff or freelancers? If it’s the former, then they are entitled to pensions, and also national insurance must be paid. And if employees get sick, they get sick pay and holiday pay. So a whole can of worms is opened if paid trustees are technically staff. It also increases the costs of a board of 10 from £60k to at least £80k, if not more, with pension and national insurance.

10. Does the opportunity for fraud increase?

At present, trustees can’t pay themselves and still be legally responsible for the charity. If trustees were more easily paid, then could unscrupulous trustees pay themselves for their roles, and still be in control! More mundanely, who sets the pay of trustees, if they are deciding their own pay? Or is a new ‘independent’ trustee committee needed?

11. Would trustees' standards increase with payment?

One of the arguments I have heard from those who sit on non-profit boards which do pay their members is that it gives greater ‘authority’ to hold people to account. If a volunteer doesn’t turn up to meetings or is generally disengaged, many boards won’t say or do much. But when they are paid, it gives a greater ability to ‘crack the whip’ with poor performance.

12. Is trustee payment more work for chairs?

All these knotty questions bring more work, and much of that may fall on the chair, particularly in a small charity. The chair needs to agree on the payment regime, set clearer objectives for trustees, and generally make sure the organisation’s investment is well spent. In larger organisations, the burden may fall on the CEO or the company secretary. As an aside, paying trustees is also probably more work for recruitment agencies: if trustees are being paid, then the organisation needs to be recruiting the very best trustees it can find.

I used to be an advocate for paying trustees more freely. Over the last few years, my views have shifted, and this thought experiment (which probably only scratches the surface of the implications) has shown that there are quite a lot of knotty questions we don’t know the answer to. It has made me feel that the benefits of paying trustees are not equally distributed. The big charities will almost certainly benefit, but it is not clear that this is the case for smaller charities.