Director remuneration in the not-for-profit sector is no longer the fringe practice it is sometimes assumed to be. The AICD's Not-for-Profit Governance and Performance Study 2023-24 found 21 per cent of not-for-profit directors were remunerated, up from 14 per cent five years earlier, with a further 24 per cent of boards actively discussing the question. The trend is real. Whether it strengthens or corrupts a specific board's governance depends entirely on how the decision is made, not on the decision itself.
The legal starting point most boards skip
An organisation cannot pay its directors if its constitution prohibits it, and many association constitutions do, often as standard, unexamined boilerplate from formation. Before any remuneration discussion goes further, a board needs to confirm what its own constitution actually says, and if it prohibits payment, changing that requires a genuine special resolution of members, the same threshold and process discussed in the Foundations quarter of this series, not an internal board decision.
There is a specific trap worth naming directly. Under section 150 of the Corporations Act, certain companies limited by guarantee are permitted to omit the word 'Limited' from their name, but only if their constitution prohibits paying directors' fees. A charity trading under a name without 'Limited' that later wants to remunerate its board must amend its constitution and notify ASIC, or it risks operating in breach of the very provision that let it drop the word in the first place.
Where the acnc actually stands
The ACNC does not prohibit charities from remunerating board members. Its position is that payment is permissible where it is made in furtherance of the charity's purpose, allowed under the governing document, properly authorised through the organisation's own internal process, and reasonable in amount, connecting directly to the private benefit principle discussed earlier in this series: remuneration is a form of private benefit that remains acceptable only where it is genuinely proportionate and clearly serves the charitable purpose rather than existing primarily for the benefit of the individuals receiving it.
The majority of Australian charities still do not pay their boards, and that remains a legitimate governance choice, not a deficiency. The question worth asking is not whether payment is permitted. It is whether payment, in your organisation's specific circumstances, genuinely strengthens governance or quietly begins to corrupt it.
When payment strengthens governance
The case for remuneration rests on genuine, defensible grounds: it validates board service as a serious commitment rather than an informal favour, it widens the pool of capable candidates beyond those who can afford to volunteer significant time unpaid, an equity consideration particularly relevant to the diversity discussion earlier in this series, and it allows an association to compete more credibly for governance talent against commercial boards that pay as a matter of course.
When payment corrupts governance
The risk runs in the opposite direction when payment is introduced without genuine discipline around it. A board that begins attracting candidates primarily motivated by the fee rather than the mission has changed who it recruits without necessarily improving who it recruits. Payment levels set without genuine external benchmarking risk becoming self-perpetuating and difficult to wind back once established. And an association that pays its board while paying little public attention to that fact risks a genuine reputational cost with donors and members who reasonably expect volunteer governance in the sector, unless the decision is made and communicated with real transparency.
- Confirm what your constitution actually permits before the conversation goes any further, and treat changing a prohibition as a genuine special resolution process, not an internal decision.
- If your organisation's name omits 'Limited', check section 150 implications before proceeding with any remuneration decision.
- Set remuneration through a genuine, benchmarked policy rather than an ad hoc figure, with the amount tested against comparable organisations and against what the ACNC would recognise as reasonable and proportionate.
- Communicate the decision, and the reasoning behind it, transparently to members and stakeholders, since the reputational risk of paying quietly is considerably higher than the risk of paying openly and explaining why.
Paying directors is neither inherently good governance nor inherently bad governance. It is a genuine trade-off, and like every other genuine trade-off this series has examined, the outcome depends entirely on whether the board makes the decision deliberately, transparently, and with real discipline, or drifts into it informally and hopes nobody asks too many questions.
Explore the Board Director course
Want the fully branded, board-ready PDF of this article? Download the whole 52-part series — free.
Until next week,
Annie