Charity boards in fees conundrum

AGED care provider Bethanie was one of the first charities in Western Australia to start paying fees to its non-executive directors.

It may also be the first to start pulling back, deciding this year to slash its board fees.

Bethanie began paying board fees in 2005, well ahead of most of its peers.

It has also been one of the most generous. For the past decade, its aggregate board fees have generally been more than $500,000 per year, and they hit a peak of $611,000 in the year to June 2022.

However, with Bethanie incurring a big loss in the 2022 financial year – along with nearly every major aged care provider in the country – and still facing what it calls “very significant financial challenges”, it has decided to wind back the largesse.

Chief executive Christopher How said Bethanie had reduced its overall board fees in FY23 to about $517,000, a cut of 15 per cent. At the same time, it has added a seventh director to its board, to help ensure it meets the outcomes of the Royal Commission into Aged Care Quality and Safety.

Despite the big cut in its board fees, there remains a sizeable gap between Bethanie’s approach and that of the rest of the industry, according to research by Business News.

Of the 20 largest not-for-profit aged care providers in WA, only half pay board fees (see table). Brightwater Care Group is ranked second for board remuneration, with aggregate payments of $280,000 last financial year (less than half the amount paid by Bethanie).

It was only three years ago that Brightwater began paying board fees, after gaining approval from its members at its 2019 annual meeting.

Among charities outside the aged care sector, payment of board fees is even less common.

Of the 20 largest charities in WA, the Business News survey identified just four, all in disability services, that pay their directors.

WA’s largest charity, the Royal Flying Doctor Service Western Operations, does not pay its directors and has no intention of doing so. “It has come up but not as a serious issue,” chairman Sam Walsh told Business News.

“We have an incredibly professional board and I’ve had no problem attracting people.

“They are not doing it for money, it’s a calling.”

Its board includes mining executives Simon Trott and Joanne Farrell, surgeon Fiona Wood, Crown Perth chair John Van Der Wielen, lawyer Saul Harben, RAC boss Rob Slocombe and corporate adviser Karen Brown.

Mr Walsh said the amounts typically paid by NFPs would not be enough to make a difference.

“You are not going to pay that much anyway,” he said.

“It’s a token, in my view.”

Justin Scanlan supports payment of board fees at larger not for profits. Photo: Matt Jelonek

Mr Walsh said RFDS had consistently been rated Australia’s most trusted charity, and that was important in attracting support from donors.

It had total revenue last financial year of $118 million, including $9 million from fundraising and bequests.

“We take donations from the public so we don’t believe we should be remunerated,” Mr Walsh said.

He added that RFDS had committees across WA supporting its operations whose members all served on a voluntary basis, so it would not be appropriate for the board to be paid.

MSWA, Telethon Kids Institute, Clontarf Foundation and Anglicare are other large charities that do not pay board fees.

The case ‘for’

Recently retired Ability WA chair Justin Scanlan sits in the opposing camp.

He spent 10 years on Ability’s board, including five years as chair, and has become an advocate for board fees in not for profits over a certain scale.

Ability’s board looked at remuneration seven years ago and at the time was philosophically opposed to the concept.

“We revisited the issue four years ago; we got external advice, benchmarked and identified an emerging trend,” Mr Scanlan told Business News.

“It became really obvious that if we want to attract the best people and get the best out of them, then we had to offer an additional incentive through remuneration.”

He said this was particularly the case given the increased risk profile on all directors.

Mr Scanlan, who is the lead consulting partner at Deloitte, said the payment of fees was put to members at Ability’s 2019 AGM and attracted robust discussion and strong support.

Ability also consulted with external stakeholders, including state and federal governments, which provide most of its funding.

The total fees paid to Ability’s nine directors in FY22 was $267,000, which includes base fees and extra for committee work.

Mr Scanlan said he had observed clear improvements since the introduction of board fees.

“It’s not necessarily the quantum of the dollars,” he said. “You still have to lead with a philanthropic purpose, but the fees increase the expectation, implicitly and explicitly, on directors.

“It does seem to make a difference. “It’s the hours put in, the attendance at meetings, the commitment made to sub-committees and special projects, that went through the roof.”

Mr Scanlan said directors were also more involved in providing fundraising support, both via personal donations and through their wider networks.

While Mr Scanlan has retired from the board of Ability WA, he continues as a senior trustee of the Ability Foundation, which handles fundraising for special purpose projects unfunded by government. Mr Scanlan said trustees acted in a purely voluntary capacity.

He said the foundation had increasingly sought to be transparent with donors.

“The foundation is a separate entity and is linked to specific tangible projects,” Mr Scanlan said.

“We can tell people exactly how their donations are used and the impact they have on the individual, family and carers.”

The trend

Not-for-profit organisations that start paying board fees invariably cite an industry trend in favour of this practice.

The Australian Institute of Company Directors’ annual survey of the sector seems to support this conclusion.

Its latest survey, released last month, found the proportion of not-for-profit directors being remunerated has grown to a survey high of 22 per cent, up from 14 per cent five years ago.

It also found the average pay rate was almost $23,000 per director per annum.

Management consultant Penny Knight, who specialises in advising not-for-profit boards, is wary of the survey results.

She believes this year’s results may be distorted by changes in the survey sample and doubts there has been any notable increase in the proportion getting paid.

“We know that payment of directors is correlated with the size of the organisation and the industry in which it operates,” Ms Knight said.

Sam Walsh says he has no trouble attracting high-quality directors to the RFDS board despite the absence of fees.

Having run the AICD survey for nine years, she said the proportion getting paid had fluctuated between the mid and high teens for the past decade.

The latest survey result was only slightly outside that range. Ms Knight believes not for profits need to be more strategic in their approach to board remuneration.

She also draws on her experience as a director of aged care provider Juniper, which paid aggregate fees of $122,000 to its board members last financial year (substantially less than other big players in the sector).

Ms Knight believes not for profits planning to pay their directors first need to decide whether it is culturally appropriate.

“Given we have many very large not for profits that do not pay directors, it’s not actually a financial decision, you have to first work out where people stand on values,” she said.

“When I give talks on this topic, I ask people if they think directors should be paid; about one third say ‘yes’, one third say ‘no’ and one third are sitting on the fence.

“That’s before they have any idea of what organisation we are talking about, how big they are, how complex it is, the liabilities.

“It’s just an opinion, and then people backfill their opinion with their ‘evidence’ about whether or not directors should be paid.

“Unlike most business decisions, like how much you should pay your CEO, this is actually a values-based decision for most people.

“It’s not rational, necessarily, but we try to make it look rational.”

If not for profits decide to pay their board of directors, the next question is: how much?

“There isn’t a right answer to that either because there usually isn’t a clear basis for what you are paying for,” Ms Knight said.

She encouraged NFPs to be clear on the role and responsibilities of directors, including their participation in committees and other activities outside regular board meetings.

Ms Knight said she was concerned about NFPs paying fees for the wrong reasons.

“The biggest mistake is where people have a board that is not performing well or where directors are disengaged,” she said.

“Paying them will not make them better.

“In fact, it could just result in retaining directors that you’d like to move on.”

“If you have an underperforming board, you should fix the board and then think about paying them, not the other way around.

“The strongest justification in my mind for paying directors is recruitment and retention.”

Ms Knight has clients in sectors such as aged care and disability, where directors are now spending a lot more time on their board role and facing increasing personal liabilities.

In these cases, and where they can afford it, some not for profits may need to pay directors, as the job is now just too hard.

Even then, she said payment of fees was just one factor to consider.

“What drives someone to join and stay on a board is a complex issue.

Money is only one part of it,” Ms Knight told Business News.

“People often go onto boards for status or networking reasons, to feel valued or from a sense of duty to the community.”

Ms Knight said the introduction of board fees could even have negative effects.

She was aware of some people who had resigned from not-for-profit boards because their fellow directors had decided to start paying fees.

Aged care sector

One sector where payment of board fees has become more accepted is aged care, at least among the bigger players.

However, a quick scan of the 20 largest not-for-profit aged care providers in WA shows little correlation between the size of the business and the amount paid to non-executive directors.

Among the major players in the sector, the only one that does not pay board fees is Amana Living.

 “Our board members volunteer their time to perform an important service to the community,” chief executive Stephanie Buckland said.

Mt Hawthorn-based Rosewood Care Group is a small player with two aged care facilities and annual revenue of $18 million.

Despite this, it paid nearly $264,000 in board fees last financial year, the third largest amount in the sector after Bethanie and Brightwater Chaired by Programmed executive John Pirie, Rosewood explained that it started paying its board in 2019 “to acknowledge the increased workloads and responsibilities of board directors”.

Its board payments started at $161,000 and have increased substantially since then.

Another to pay high fees is Southern Cross Care. Chaired by Bradley Prentice, it started paying board fees more than a decade ago.

Its latest published report, for the year to June 2021, discloses total compensation to board members was about $238,000. Baptistcare and Curtin Heritage Living pay about the same in board fees yet they are very different in scale and focus.

Marcus Stafford is the only board member at Activ Foundation to be paid a fee. Photo: David Henry

Baptistcare, with annual revenue of $113 million, boosted board fees by 32 per cent last year to $130,000.

Curtin Heritage Living is much smaller, with annual revenue of just $21 million, though it is undertaking a very large expansion at its Cottesloe property.

Chaired by Ray Glickman, Curtin has been paying board fees for more than a decade.

They have risen very substantially over that time, from $34,000 in 2012 to $133,000 last financial year. Gosnells-based Amaroo Care Services shows that board fees can be very modest amounts.

Its directors have been paid sitting fees for the past three years, with aggregate payments totalling just $16,800 last year. In the disability care sector, Rocky Bay began paying board fees two years ago.

It made aggregate payment last year of $121,000.

Activ Foundation has a different approach. It pays an honorarium of $39,600 to its chair, Marcus Stafford, but makes no payments to other board members.

A spokesperson said the payment to Mr Stafford was considered to be $5,000 below the average for similar organisations.

Disclosure

Disclosure standards vary across the not-for-profit sector.

Brightwater has opted for more fulsome disclosure than any of its peers.

Its latest financial report discloses that chairman David Craig was paid $44,000 and the other directors are each paid about $27,000.

That adds up to aggregate payments of about $280,000. Bethanie, which is chaired by Diana Forsyth, historically provided a similar level of detail.

However, it has halted that practice over the past two years, around the time Business News started publishing the data.

Its last two financial reports have no data on board remuneration.

But Bethanie did provide its aggregate board remuneration when requested by Business News, in line with disclosure by many of its peers.

Mr How said Bethanie’s 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,” he said.

“As part of our corporate governance framework, we have set high expectations of the skilled individuals that make up the Bethanie board and this means they spend a lot of time and energy getting to know and understand the Bethanie business in order to make a significant contribution to strategy.”

Like other not for profits, Bethanie’s fees are reviewed and ratified by its members at their annual general meeting.

Of the 20 largest not-for-profit aged care providers in WA, only three did not disclose any details on board remuneration: Silverchain, MercyCare and Catholic Homes.

Of these, Silverchain confirmed it paid board fees but did not provide details.

A spokesperson simply said board remuneration was “aligned with aged care providers of a similar type, size and annual revenue”.

The only figure disclosed by Silverchain was total remuneration for its key management personnel, which includes the eight board members and the 12 members of the group executive.

This figure was $5.3 million in FY22. This met Silverchain’s statutory reporting requirements. The group also disclosed it was seeking to recruit new board members in WA, which is understood to be its largest market.

“Our board is made up of representatives from across Australia, as we operate in five states,” a spokesperson said.

“We currently have board vacancies and are recruiting for these directorships in WA.”

The incumbent board is led by Adelaide-based Anne Skipper, who has been chair for 12 years, and counts Haydn Chrystal as the only WA-based director.