Key Result Area One
Strictly Private and Commercially Confidential
[Insert your Organisation’s Logo]
[Insert your Organisation’s Name]Board of Directors’
Remuneration Checklist
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPLThe Governance Big Picture Of Not For Profits
The Governance Big Picture of Not For ProfitsThere are an estimated 700,000– 845,000 Not For Profit (NFP) organisations in Australia. These organisations can be broadly divided into approximately thirty different industries/sectors. Many of the organisations within each industry or sector have overlapping services.
The majority of NFP organisations were established post World War II, from the early 1950s/60s through to the late 1980s/90s. This period of time is widely acknowledged by NFP boards and chief executive officers as the rise of the welfare state or welfare paradigm.
Since the late 1990s the majority of NFP organisations, particularly those involved in human services have moved increasingly into the market paradigm, characterised by corporatisation and commercialisation. In the welfare state or welfare paradigm, boards of directors were viewed and operated as committees of management/management committees or similar. Committee members were often the founders, managers and directors of the organisation.
Typically committees are transitioning into the new roles and responsibilities of governance. Many boards have changed or are changing their legal entities from Incorporated Associations to Companies Limited by Guarantee. Organisations, having started as small services, today are governing multi-million dollar organisations, employing hundreds of staff and providing services over a large geographic range. / In essence, governance is a leadership process that is both expected of directors by members/stakeholders and required by legislation, standards, quality systems and increasing funding and service agreements or contracts.
Contemporary boards of directors, whether private, public or community businesses, are governing their organisation, enabling management to manage the organisation.
Broadly speaking, governance has three key components:
- firstly, a legislative framework, comprising Local, State and/or Commonwealth legislation, an organisation’s constitution or similar document and government or industry standards or quality systems, contracts or funding and service agreements
- secondly, a leadership framework that is theoretical, yet provides the basis for the governance frameworks and models
- thirdly, a governance system that provides the necessary governance principles, policies, procedures, tools and resources that assists a board to undertake its governance work in a very practical way.
The following observations and considerations on page 2, should also assist directors discuss and determine a position on the payment or non payment of their remuneration.
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
Governance & Remuneration Observations & Considerations
Governance & RemunerationObservations & Considerations
The team at Australian Strategic Services has worked with over 4,500 boards, chief executive officers and senior management teams from a wide variety of community businesses (NFP) throughout Australia. Therefore the following observations are put forward to directors and chief executive officers:
1.The majority of community business boards are transitioning from managing the organisation to governing the organisation.
2.The transition process tends to span a one-two year timeframe, usually with the assistance of an external governance facilitator or consultant.
3.Typically, boards discuss and agree on their governance model, governance structure, board skills mix, governance system (principles, policies, procedures, indicators, tools and resources) board budget, Board Annual Program of Work, Chief Executive Officer Delegation Schedule and other related matters. Somewhere in that mix the board remuneration debate may occur.
4.Boards which do decide to remunerate directors usually develop a governance policy on board remuneration and/or customise and use a standard governance policy from TAGS™, The Australian Governance System.
5.The remuneration of directors tends to happen in medium to large community businesses, which have worked through several philosophical debates, eg: Are we a business or are we a service? What is our core business? Does our board behaviour match our agreed values? What are our risks and responsibilities?
6.Two recent Australian research articles indicate that somewhere between 12%-15% of NFP directors are remunerated, most of whom are directors of Companies Limited by Guarantee, eg: Group Training Companies. / 7.All directors/boards which are either clients of ASSPL or known to ASSPL remunerate:
- the chair, other officials and all directors
- do not pay the chairperson additional remuneration.
9.Boards which are remunerated usually have a remuneration package consisting of $ for tours, conferences, visits, workshops and retreats, $ for reimbursement of travel, telephone etc. and $ for a board sitting fee.
10.When boards do not have all the various governance components in place and operating, including a robust financial management system and accountability process, self-interest soon overruns directors and fraud, misappropriation and related illegal activities can and do occur. The danger is the development of a self-serving board culture.
11.With the increasing number of private and public businesses competing for tenders and contracts, State and Commonwealth governments are moving away from being prescriptive about directors of community businesses not receiving remuneration, eg: Commonwealth Department of Health and Ageing.
12.Ultimately boards will need to determine their own position on remuneration. The Board of Directors’ Remuneration Checklist is one useful tool to assist this discussion.
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
Overview
Tool: / This is a Board of Directors’ Remuneration Checklist.Purpose: / The Board of Directors’ Remuneration Checklist is a governance tool that can be used by a board to discuss and determine its position on the payment or non-payment of directors.
Instructions: / Step One:Each director should be given a copy of the tool prior to the board meeting where the remuneration of directors will be discussed. Directors should read the whole document, particularly the opening pages (1-4).
Step Two:The Chairperson or nominated facilitator should take the board through each element/item in the Board of Directors’ Remuneration Checklist, ensuring adequate discussion about each point.
Initial trial of this checklist, saw the membership of a large national community business overwhelmingly voting for the remuneration of the board with an increased remuneration for the chairperson.
Step Three:Refer to the Example Page, page 4 as to how to fill out the respective pages.
Further Information: / Michael Goldsworthy
Principal Consultant
Australian Strategic Services Pty Ltd
PO Box 275
Romsey Victoria 3434
Telephone: (03) 54296 331
Mobile: 0418 130 581
Email:
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
Example
/ Honest Discussion?
Has the board had open and honest discussion about the remuneration of directors? / Yes / 1.Develop remuneration rationale.
2.Develop a schedule of fees/remuneration scale. / Board ARC C’tee
Board ARC C’tee / By End May 08
By End May 08 / To Do
To Do
/ Board Remuneration Policy?
Has the board developed and agreed on a Board Remuneration Policy or similar governance policy/ies? / No / 1.Need to refer to TAGS™, check policy.
2.Check out other organisations policies. / Board ARC C’tee
Board ARC C’tee / By End May 08
By End May 08 / Done
To Do
/ Legal Entity Conflict?
Will the remuneration of directors be consistent with the organisation’s legal entity/structure? / Unknown / 1.Seek legal advice. / Chair / By Mid April 08 / To Do
/ Constitutional Conflict?
Will the remuneration of directors be consistent with the organisation’s Constitution, Memorandum and Articles of Association, Charter or similar document? / Unknown / 1.Seek legal advice.
2.Review our consultation or may need to amend. / Chair
Chair / By mid April 08
By mid April 08 / To Do
U’way
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status1. / Honest Discussion?
Has the board had open and honest discussion about the remuneration of directors?
2. / Board Remuneration Policy?
Has the board developed and agreed on a Board Remuneration Policy or similar governance policy/ies?
3. / Legal Entity Conflict?
Will the remuneration of directors be consistent with or in conflict with the organisation’s legal entity/structure?
4. / Constitutional Conflict?
Will the remuneration of directors be consistent with or in conflict with the organisation’s Constitution, Memorandum and Articles of Association, Charter or similar document?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status5. / Vision Conflict?
Will the remuneration of directors be consistent with the organisation’s vision?
6. / Mission Conflict?
Will the remuneration of directors be consistent with the organisation’s mission?
7. / Values Conflict?
Will the remuneration of directors be consistent with the organisation’s values?
8. / Philosophy/Ethos Conflict?
Will the remuneration of directors be consistent with the organisation’s ethics, philosophy, ethos or aims?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status9. / Board Annual Budget?
Will the remuneration of directors form part of the Board’s Annual Budget?
10. / Board Annual Budget?
Does the Board’s Annual Budget form part of the organisation’s three year Strategic Financial Management Plan?
11. / Reporting of Remuneration?
Will the remuneration of directors be documented in the Annual Report and reported to the members at the AGM?
12. / Remuneration Criteria?
Will the remuneration of directors need to be reported to ASIC, ATO or similar State or Commonwealth Government departments or authorities?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status13. / Schedule of Remuneration?
Has the board determined or documented on what basis/criteria the directors will be remunerated?
14. / Remuneration Determination?
Has the board developed/obtained and documented a Directors’ Schedule of Remuneration or similar tool that will be part of the boards governance system?
15. / Affordability?
Have directors discussed and agreed on how to structure the remuneration eg:
•per hour of sitting
•per annum (an honorarium)
•per board, committee or taskforce meeting
•a package based on time sitting, conferences/workshops and reimbursements?
16. / Legal Advice?
Has the board of directors reviewed and discussed the impacts and implications on the organisation’s financial position, annual budget/strategic financial management plan/projected profit and loss or similar?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status17. / Remuneration Conflicts?
Have the directors sought advice from an appropriately qualified and experienced commercial legal consultant/management consultant/governance consultant?
18. / Remuneration Conflicts?
Will the remuneration of directors be in conflict with any current State or Commonwealth government funding and service agreement/s, contract/s or tender specifications?
19. / Remuneration Conflicts?
Will the remuneration of directors be in conflict with industry or government standards, quality systems or accreditations/certification/
registrations?
20. / NFP/PBI/DGR Conflicts?
Has the board considered and sought legal advice on the impacts and implications of remunerating directors with regard to NFP/PBI/DGR status?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status21. / Stakeholders’ Viewpoints?
Have directors discussed and agreed on the actual/potential views and opinions of membership, other internal stakeholders or key external stakeholders?
22. / Members’ Viewpoints?
Assuming the directors’ remuneration can only be paid with the consent of members, have the directors developed a presentation and held discussions with members?
23. / Impacts & Implications?
Have the directors discussed and agreed on the potential impacts and implications on the organisation from government, the community, donors or benefactors if they are remunerated?
24. / Total Package?
Aside from board sitting fees, combining:
•reimbursements,
•conference, tours and visits costs
•training costs
•retreats and workshops
what will the total package be?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status25. / Remuneration Parameters?
Aside from board sitting fees, have directors discussed and agreed on the specific value/parameters per director, or in total of:
•reimbursements
•tours, visits and conferences
•training costs
•retreats and workshops?
26. / Payment Method?
Will directors’ remuneration be paid:
• in cash
• by cheque
•electronic transfer
•in return for services
•other methods?
27. / Personal Perspectives?
Aside from the governance and organisational considerations and implications has each director expressed their personal perspective and opinions about board remuneration?
28. / Chair Remuneration?
Have directors discussed and agreed on the Chair/Deputy Chair or other official’s remuneration as distinct from other directors?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status29. / Chair Remuneration?
In Item 27, have directors discussed and agreed on the justice/equity/ethics/code of conduct/values of remunerating the chair, deputy chair or other officials over and above other directors?
30. / Remuneration Cycle?
Have directors discussed and agreed on whether directors will be paid annually, quarterly or monthly?
31. / Remuneration Accountabilities?
Have the directors discussed and documented the various internal and external accountability processes eg: Audit, Risk and Compliance Committee of the Board?
32. / Governance Policies?
Have directors discussed, agreed on and developed governance policies on when directors will not be remunerated, eg:
•fraud investigation
•breach of confidentiality
•insolvency or pending insolvency
•poor or spasmodic attendance
•a vote of no confidence?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status33. / Remuneration Dangers?
Have directors discussed and agreed on ‘the dangers’ of remuneration, eg:
•no director turnover, because there is no 1/3, 1/3, 1/3 turnover governance policy or similar
•directors’ become tired, are of little value or just warming a seat etc?
34. / Remuneration Benchmark?
Have directors ‘benchmarked’ best they can, their projected remuneration against other similar community businesses (Not For Profit), eg: Local Government, Private Health Insurance Companies, Credit Union, large aged and community care organisations?
35. / Sponsor, Donor, Bequest Impacts?
Will the remuneration of directors impact upon any sponsors, donors, bequests or similar?
36. / Stakeholder Considerations?
Will directors be comfortable and can they justify to internal and external stakeholders why they are remunerated eg: media, parent lobby groups etc.?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status37. / Remuneration Timing?
When will directors’ remuneration be received, eg: annually, tri-annually?
38. / Remuneration KPIs?
Will directors’ remuneration be linked to an agreed set of board key performance indicators/targets/ratios/performance measures that are contained in the organisation’s Performance Management System?
39. / Board Self Assessment?
Will directors’ undertake an annual board self-assessment and will the self-assessment be linked to remuneration reviews?
40. / Board Code of Conduct & Confidentiality Agreement?
Will each director be expected to sign a board code of conduct and a board confidentiality agreement, the contents of which may contain information/criteria/statements on board remuneration?
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist
Item / Remuneration Checklist / Unknown / Yes / No / Agreed Actions or Ideas / Who / Time / Status41. / Public Accountability?
Will the boards’ performance against agreed board key performance indicators, be documented in the Annual Report, presented at the Annual General Meeting or made public in other ways?
42. / Electronic Tool?
Has the chief executive officer or directors developed an electronic tool to assist them calculate requirements/time/cost per director or similar. Note: some boards use Excel to develop a simple tool.
43. / [Put in your own issues, questions or challenges to your board about remuneration].
44. / [Put in your own issues, questions or challenges to your board about remuneration].
TAGS™: / BOD Remuneration Checklist / Status: Master / Version: Three / Date: 9 June 2011 / Licence No: (Lic No) / © ASSPL (1)
[Insert Short Name] Board of Directors’ Remuneration Checklist