Can a board member of a tax-exempt nonprofit also be a salaried officer of the organization?
The short answer: It depends.
In a previous blog post, we talked about the issue of private inurement, when
discussing the recent
case of Greg Mortenson. After allegedly abusing his status as a board
member, he is still allowed to work as a salaried employee of the organization.
But he is no longer allowed in any financial management role.
Does his case indicate that being a board member and being a salaried officer are mutually exclusive? Not necessarily
Board members can be salaried, under the tax law of exempt organizations. Their salaries must be reasonable. They should also be determined in accordance with a conflict of interest policy and a compensation policy.
These policies are put in place to ensure that the board members receiving the salary aren't engaging in prohibited "private inurement." Translation: That they aren't deriving extra benefits from the nonprofit.
A standard conflict of interest policy will usually require voting procedures on any issue that may pose a conflict of interest to a board member. This would include paying a salary to a board member or to the relative of a board member. Typically, that "interested" board member would be asked to leave the room when the vote is taken on compensating the individual.
A compensation policy would typically lay out the way that compensation is determined. A nonprofit will have to take comparable statistics to make sure the salary lines up with the norm for that position. The procedures for deciding on the salary would have to be in place. The duties of the position would be determined. Finally, proper documentation would have to be in place to ensure that the decision was reached impartially.
In short, a salary can be paid to a board member of a nonprofit, if the salary is reasonable. The term "reasonable" however, is a legal term of art that will depend on the facts and circumstances of your situation.