Setting Board remuneration for a commercial company is relatively simple.
There are a number of databases providing comparative remuneration levels that can be trawled and you can check with Human Resource Employment agencies.
Setting Board remuneration for a Not-for-profit is extremely difficult because of the paucity of publicly available information. Multiply that level of difficulty by 10 for information about remuneration of Directors of Indigenous organisations.
Trying to shoe-horn “median” rates from general surveys on samples of NFP’s into your particular circumstances is so inappropriate, don’t even try it.
There are no set tables. So what steps can you take in setting equitable remuneration for Directors of Indigenous Boards?
I can recommend 6 steps to take to set remuneration for Indigenous Boards.
Firstly you need to check the Constitution or Rule Book. Some of these have clauses that set rules about who may be paid remuneration, what constitutes remuneration, as well as what levels of remuneration are able to be paid.
On the assumption that the Constitution is either silent or reasonably general in outlook, you can then take the next 5 steps to set a reasonable and equitable remuneration rate.
The second step after checking your Constitution is to prepare Director Job Descriptions. Treat the exercise as if you were about to employ a senior manager. Normally you want to set a Job Description for a senior role, to attract the right candidate, to ensure you and the candidate know what is expected of the role, and to be able to monitor and appraise the employee in the role.
Why should the role of a Director be any different?
The Director Job Description will include some standard items such as their legal roles and responsibilities, but as in an employee’s job description, you should also include matters about behaviour and attendance.
As well, you can include specific role descriptors if they have particular responsibilities like a portfolio, or are members of sub-committees. Naturally, Chairpersons and chairs of sub-committees should also have specific responsibilities written in about their roles.
Then as the third step, despite what I said earlier about lack of information, try (the operative word is “try”) to benchmark against Director’s fees of similar sized, similar sector, similar structured Indigenous organisations. You may be able to get this information, even if they are represented as averages or in “bands”, from Directors of other organisations, annual reports filed with ORIC or the ACNC, or ORIC’s Remuneration Report.
This will not be an easy task, so ultimately use the information you have as a guide only and benchmark what you know with the Job Descriptions of the Directors.
With this albeit not particularly accurate benchmarking, make a reasoned decision regarding the level of remuneration set for your Directors, and document the decision, and the reasons.
The fourth step is to then examine the additional responsibilities of Chairpersons and committee members or portfolio holders to see what, if any, additional mark up should be provided for the additional responsibility. At the same time, consider and provide a reasonable and careful decision about any difference in remuneration for independent Directors. Also, what happens if Directors are asked to step into a management role for a period of time? What about Directors who are also employees and receive full-time remuneration in that role?
Carefully document the consideration and reasons for any of these decisions about adjusting the standard Director remuneration.
Even if chairpersons, committee members, portfolio holders and independent Directors are to be paid the same as everyone else, document that decision and explain why this was decided.
The fifth step is to decide how the remuneration is to be paid. Should a fixed annual fee be paid in monthly or quarterly amounts? Should the annual remuneration be split into the number of average meetings and be paid after each meeting attended?
Finally review the decisions against the overall budget of the organisation and its cash flow. Don’t forget Boards may have attached expenses that should be considered in the same “pool” of Board related expenditure, for example travel and accommodation and other meeting costs.
If the total Directors’ remuneration amount is say 20% of your total budget – you have a problem.
There is no set percentage that says you have it right. You need to assess it in accordance with your circumstances.
While the amount of remuneration per Director may be totally commercially acceptable for the level of responsibility and work outlined in their Job Description, sometimes, because you don’t have the income, you just can’t pay what everyone deserves.
Those are the 6 steps I recommend using when setting Directors’ remuneration. However I believe that there are additional steps you need to take to ensure transparency in governance processes. Particularly if your Indigenous corporation or Trust is a community based Not-for-profit (or a commercial subsidiary of one) I believe you need to take the following additional steps:-
- Publish the decisions about Director remuneration. You can take care of privacy considerations by providing the reasons and general levels of remuneration without revealing individual levels, or you can provide “bands” of total remuneration per category of Director. However under these circumstances, I believe there is an argument that Directors should individually allow the corporation to revel their remuneration – after all, they serve their constituents, not a commercial shareholder group.
- Publish appropriate information about Directors’ fees and the total remuneration in annual reports to members.
- Implement a process of Board self-assessment about their performance as a Board, and reinforce this with annual reviews of Director performance including attendance figures, professional development undertaken, and contribution to decisions and meeting dynamics, as well as measuring their performance against their Job Descriptions.
As I said at the beginning, there is no secret formula or table of remuneration you can follow.
Ultimately you pay the level of remuneration that is “right” for your circumstances.
How do you get to what’s right? Follow the steps above, and at least, you will have a well-considered and transparent remuneration-setting policy.
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