Ethics Q & A
May 30 , 2005
By Jane Garthson, Mills
Garthson & Associates
The question:
I am a board member of a local charity with seven staff members. I have no idea what the Executive Director earns or how it is determined. The Chair says only the Executive Committee needs to know, and they are protecting the ED's privacy. Is this normal?
Jane says...
The situation you describe is not proper, regardless of whether or not it is normal in your community.
An Executive Director reports to the entire Board. You are internal to the organization and have a right to be involved with compensation decisions about the person who reports directly to you!
Unless the board is very small - perhaps five or fewer - the work of evaluating an Executive Director, researching compensation issues, and giving direct formal feedback to the ED is normally delegated to a Board committee. Since the Executive Committee is made up of officers, who likely deal with the ED more frequently than most other Board members, it is a suitable choice in organizations that have an Executive Committee.
Another appropriate choice is the Governance Committee. In dealing with board use of time, development, selection and training, it is reasonable to also deal with Board-ED relationships.
A third possibility is an Evaluation Committee, sometimes combined with Planning. This committee should be the most informed about progress towards the strategic plan and the level of organizational success. In other words, they are in a good position to evaluate ED performance. Evaluation at the level of top leadership is more about organizational performance than personal tasks accomplishment.
However, any committee conducting formal ED evaluations should be confirming the process with the Board and seeking input from all Board members. You decided what the objectives should be for the organization (I hope) and can comment on how well they are being met. As well, organizations need to make sure that the ED is working well with all the decision-makers, not just the officers.
Their compensation recommendation should be based on a combination of performance review and market considerations. Note that I said recommendation - did you delegate the decision to the Executive? Unless there is a Board-approved Terms of Reference for the Executive Committee that explicitly delegates that decision, then they do not have the authority to change the compensation level. It has to come to the Board for approval.
I would not recommend that you delegate such authority. If you have, you can propose changes to the committee Terms of Reference. Remuneration of the top staff person has been an issue in a number of scandals and media articles, in both for-profit and nonprofit situations. Overpayment can also cause government oversight actions to kick in. Underpayment can cost you a wonderful person.
The Board as a whole needs to make fair pay decisions, within its means. If your organization cannot afford to pay even the low end of market rate for your ED, consider solutions such as a shorter work week for the full amount you can afford.
You asked specifically about privacy. Board discussions about ED performance and compensation should be closed. In Canada we usually call that "in camera" and in the USA "executive session". Only Board members should be in attendance, along with the ED for whatever portion is appropriate. Even if the ED is an ex-officio member of the Board, they are excused for at least part of the time to allow open discussion. They can be called back in for feedback and dialogue, still with no guests or observers in attendance. If a staff member normally takes the minutes, consider having the Secretary take minutes instead for this item.
If you are planning to terminate the ED and are expecting legal action, you could have a lawyer there under solicitor-client privilege. Note that such privilege cannot apply to a board member even if the person is a lawyer.
The minutes from such a session should be approved in an in-camera session too. The general minutes can simply note "The Board met in camera in relation to ED compensation" or some such generality. The ED privacy is protected by having the details known only to the people to whom the ED reports.
Good luck getting this situation changed. Other board members likely share your concern.
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Because nonprofit organizations are formed to do good does not mean
they always are good in their own practices. Send us your ethical questions
dealing with volunteers, staff, clients, donors, funders, sponsors, and
more. Please identify yourself and your organization so we know the questions
come from within the sector. No identifying information will appear in
this column.
To submit a dilemma for a future column, or to comment on a previous one,
please contact help@charityvillage.com. For paid professional advice about an urgent or complex situation, contact Jane directly.
