Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer.
Information Needed from Charity to Determine Compliance:
The charity provides compensation information, on the form provided by the Alliance as outlined below. The Alliance will also review the IRS Form 990 and notes to the charity's financial statements for applicable information about compensation.
The Alliance reviews the information provided, using the following definitions and criteria to determine compliance:
- directly compensated voting members of the board are those who receive payments (cash and/or in-kind) from the organization (e.g., paid staff member, paid consultant, etc.)
- indirectly compensated voting members of the board are those who are direct family members (e.g., spouse, parent, sibling, and child) of any of the directly compensated individuals noted above
- voting members of the board who receive honoraria are considered to be directly compensated
- voting members of the board who receive only reimbursements for expenses incurred are not considered to be compensated
- voting members of the board who are paid staff members of affiliated organizations are considered to be directly compensated if, and only if, financial and governance relationships between the subject organization and the affiliated organization are such that generally accepted accounting principles (GAAP) require the affiliated organizations to have combined audited financial statements.
For example, if a charity has a 7-member board, no more than one voting member should be compensated directly and/or indirectly. If a charity has a 20-member board, no more than two voting members should be compensated directly and/or indirectly.
Publicly soliciting organizations with the tax exempt status of a church (or other house of worship) sometimes include their ordained clergy as voting members of their governing boards. If one or more of these clergy are directly or indirectly compensated by the church, and the organization’s board composition is inconsistent with any of the requirements of Standard 4, the organization can still meet this standard if it takes the following actions:
- The governing board of the church appoints an Independent Advisory Body of at least five members, none of whom is directly or indirectly compensated by the church. The governing board should appoint both the initial members and fill the vacancies for this advisory body.
- The Independent Advisory Body receives, at a minimum, the following items for their consideration: (i) a copy of the budget for the upcoming fiscal year, (ii) a copy of the church’s audited financial statements, with the notes, (iii) a copy of the auditor’s Management Letter, if applicable, and (iv) information on related party transactions as noted below.
- The Independent Advisory Body meets at least annually. If the church is considering a transaction with a board or senior staff member, or with an individual, firm, or organization with which a board or senior staff member is affiliated, the advisory body conducts a timely review of the proposed transaction to assess its fairness to the church.
- The Independent Advisory Body provides to the governing board its determinations or recommendations on the items and matters set forth in (b) and (c) above, and any others referred to it by the governing board.