Remunerating Responsible People

In most charities, Responsible People (board or committee members, or trustees) are unpaid. They volunteer their time, experience and expertise to their charity without taking payment for their service.

However, some charities remunerate Responsible People for their work. These charities may choose to do so for several reasons.

The remuneration of Responsible People is an important consideration for charities, and one that depends on each charity’s unique circumstances.

This guide provides an overview of the issue, as well as explaining the ACNC’s viewpoint when it comes to charities remunerating Responsible People.

Responsible Person remuneration

This guide focuses on remuneration – payments made to Responsible People for their service in that role.

This type of payment is different to those made to reimburse Responsible People for reasonable expenses incurred as part of their role (for example, travel costs to and from board meetings).

The way Responsible People are paid, if at all, will vary between charities.

For example, payments could be regular and for specific duties, services or attendance (such as paying a ‘sitting fee’ to attend a meeting). Or they could be one-off payments based on performance criteria.

Remuneration is different to providing gifts or honorariums.

A gift is something given to someone without obligation, and may be in the form of money, goods or other property. An honorarium is an honorary payment made to someone without obligation in recognition of their professional service. For more information, see our gifts and honorariums guide.

Remuneration and the ACNC

The ACNC allows charities to pay their Responsible People.

Charities registered with the ACNC must remain not-for-profit and, as such, cannot offer private benefit to people involved in the charity. But as long as payments to Responsible People are:

• in furtherance of the charity’s charitable purpose,
• permissible under the charity’s governing document, and
• properly authorised within the charity,

the ACNC does not prohibit them.

Registered charities must comply with the ACNC Governance Standards.

Governance Standard 5 includes the requirements that Responsible People act in the best interest of the charity, and manage the charity’s finances responsibly.

Any payments to Responsible People that are unreasonable, unauthorised or unjustifiable may mean the charity is not complying with the Governance Standards.

Other regulators

In addition to obligations under the Governance Standards, charities may be subject to rules concerning payments to Responsible People due to their legal structure or activities.

For example, a charity that is a company limited by guarantee would be required under the Corporations Act 2001 (Cth) to prohibit payments to directors if it wanted to apply to be allowed to omit the word 'Limited' from its name.

Similarly, a charity that is a trust usually cannot pay its trustees unless its trust deed specifically sets out that they are to be paid.

Fundraising laws in some states may also regulate payments to Responsible People.

Considerations when deciding to remunerate Responsible People

The decision to pay Responsible People for their service rests entirely with each charity, and should be based on the charity’s unique circumstances.

Each charity is different and operates in different environments with particular aims and challenges – any decision to remunerate Responsible People should reflect these circumstances.

Charities that decide to remunerate Responsible People may do so for a variety of reasons.

• Charities can be large complex organisations that need Responsible People with particular skills and experience to be effective. Offering remuneration may help a charity attract people with relevant skills or experience.
• Remunerating Responsible People may enhance their sense of accountability and responsibility.
• Offering remuneration can increase the pool of potential Responsible People and lead to greater diversity. There are many people who cannot afford to be a Responsible Person without financial compensation, but would make a positive contribution to a charity.
• When Responsible People are paid for their service, charities may expect greater engagement in attendance, communication, and decision-making.

However, most charities do not remunerate their Responsible People. This decision is also an important one and may result from a range of considerations.

• Some Responsible People are attracted to charity governance as a means of 'giving back to the community' and payment may not sit well with them in this context.
• Charities may be wary that payment could replace the charity’s cause as the central motivation for a Responsible Person to take on the role.
• Some charities are managed on very limited funds and simply cannot afford to pay Responsible People for their services.
• Some donors and supporters may regard payments to Responsible People as an unnecessary expense.
• Those who regard payments to Responsible People as unnecessary may feel less inclined to support a charity that does so.

Making a decision to remunerate Responsible People

As the national charity regulator, the ACNC does not dictate how a charity should manage its operations. This includes decisions about how money is spent and remuneration to Responsible People.

How a charity chooses to use its funds (providing they are used in furtherance of its charitable purposes) is up to the charity. The ACNC recognises this autonomy is important for a sustainable, innovative and vibrant sector.

However, it is important to realise that the decision to pay Responsible People is a significant one, and charities should approach it with care and diligence. Before making a decision, the charity should be confident that it has given reasonable consideration to the issue and understand the implications of the action it takes.

Among the many considerations is the public perception of paying Responsible People. Charities should consider how a decision to pay Responsible People may be viewed by supporters and the public, and whether it carries a risk to its donations and reputation.

A charity that remunerates its Responsible People should be able to justify payments in the context of it pursuing its charitable purpose, and should be able to explain how the payments will help achieve this.

Some questions that a charity should consider when deciding whether to remunerate its Responsible People include:

• Are there any laws governing remuneration that will affect the charity, such as fundraising laws in each state, or corporations law?
• Will payments affect any current funding arrangements? Are there conditions on funding that specify funds be used in a particular way?
• Does the charity’s governing document allow Responsible People to be remunerated?
• Who should be remunerated and what is the process for determining a reasonable payment? Do all Responsible People receive remuneration? Are some Responsible People remunerated more than others?
• Will any extra expectations be placed on Responsible People in exchange for remunerated?
• How will the charity be accountable and transparent about remuneration? Will it provide a remuneration report? Will members be consulted?
• How should the charity determine the amount of remuneration (such as consulting other similar charities or using the services of a consultant to help)?

Accountability and transparency

Whether Responsible People are remunerated – and if so, how much – is often a point of interest for a charity’s members, donors and supporters, and the general public.

Charities that remunerate Responsible People should consider how these payments will be determined, accounted for and reported.

Charities should have a clear policy that outlines the manner in which remuneration is determined and the process for its approval. Such a policy should also contain steps for addressing concerns or disputes regarding remuneration.

Being accountable for remuneration is crucial, and charities should have processes that ensure it is considered by relevant stakeholders – for example, members, supporters or grant-makers.

How charities are accountable – and to whom – will vary, but charities should consider this process carefully.

For some charities, accountability may mean publishing details of payments to Responsible People in a remuneration report for presentation at the annual general meeting; for others, it may mean submitting the details to members for approval.

Importantly, charities that remunerate Responsible People should present opportunities for stakeholders to raise any concerns about these payments. For charities with members, this responsibility falls within the requirement to comply with Governance Standard 2.

Transparency is an important principle here. Remuneration may be a significant part of charity operations, and charities should be open about it and the policies that support it.

Making the details of the payments or the policies available to the public is good practice and can demonstrate a commitment to transparency. A charity that pays its Responsible People should be prepared to publicly justify the payments and explain why they are appropriate.

Charities that prepare financial statements may also need to disclose key management personnel (such as Responsible People) remuneration in accordance with the Australian Accounting Standards Board AASB 124 Related Party Disclosures.