Given attention is often focused on Directors’ and professionals’ remuneration among leading Australian companies, Egan Associates believes it is time to comment on the significant commitment of many of these (and other talented individuals) to the not-for-profit world of work.
A significant number of experienced Directors and professionals are actively engaged on Boards or other committees for the thousands of registered charities and other entities in the not-for-profit (NFP) sector as well as the many thousands of entities associated with the Commonwealth and State Governments.
A large proportion of those serving on these entities do so for modest remuneration or on a pro bono basis in parallel with their management and professional careers or engagement on company Boards. Their generosity of spirit is particularly visible in the NFP sector, where the vast majority are not paid for their contributions and individuals are often expected to cover the transport and other costs associated with their engagement.
Where contributors are remunerated for their work, their reward arrangements are generally commensurate with those working for the least well paid 20% of commercial entities. The majority of government organisations seeking external contribution from individuals with relevant attributes to the organisation’s purpose adopt a per diem fee structure. Daily fees typically vary from less than $300 to $1,000, although the latter rate only applies in selected cases. In most instances, the fees represent a modest proportion of the remuneration executives and senior professionals would receive in the for profit sector.
Many NFP organisations and charities rely upon the goodwill and personal contributions of those serving on their Boards and advisory committees. The contributors’ financial acumen, industry knowledge and professional expertise are of paramount importance in providing guidance and leadership while bringing a diversity of perspectives.
In government organisations, whether they be statutory Boards, commercial entities, advisory committees, ministerial councils, tribunals or multi-billion dollar government-owned commercial enterprises, ‘outsiders’ can and do contribute to financial stewardship, policy development and strategic reviews, creating more forward-looking, productive and community-focused enterprises on a national basis.
Estimating the value of contributions
On the basis that the federal, state and territory governments each have on average more than 2,000 entities with an indicative membership between six and 10, then more than 150,000 members of the community are engaged in supporting governments either on a pro bono basis or for compensation mostly well below that available in their normal fields of endeavour.
A far greater number would be doing the same in the broader NFP sector. The AICD’s “Mind the Expectation Gap” white paper published in February 2012 reported that there were more than 500,000 NFP organisations in Australia contributing $43 billion, or 4.1% of the nation’s GDP. The report states that the NFP sector is one of the nation’s major employers, providing 8.6% of Australia’s employment as well as involving about 20% of the overall population in a volunteering capacity, with volunteers contributing an estimated 623 million hours per annum for the public benefit. It further revealed that most of the NFPs in Australia are managed and directed by NEDs who willingly volunteer their time and expertise free of charge notwithstanding the commitment, responsibility and personal liability that they take on by doing so.
Conservatively assuming 250,000 individuals devote one day per month to these entities, this would lead to a community contribution of approximately three million days of service, or if their level of commitment averaged two days per month, six million days each year. The cost to this myriad of enterprises, assuming costs averaged $400 per day would be between $1.2 billion and $2.4 billion per annum.
The value to the community would be many times that amount.
Assuming executives in leading companies work a minimum of 3,000 hours per year (approximately 60 hours per week), and their total earnings sit at $1 million, their daily rate is around $3,500. For Directors serving on major Boards assuming annual remuneration is $200,000 per annum and a commitment of five days per month, their daily fee exceeds $3,000. This rate reduces as fees or annual remuneration declines with diminishing company scale and can increase above $4,000 per day where high levels of skill are sought. ($4,000 was the daily fee the Commonwealth Government paid to the panel of distinguished individuals asked to review the Fair Work Act and its application in 2012.)
Clearly the value of contribution or foregone remuneration will vary where a hard working and well qualified member of a community is earning $100,000 per year. In this case the daily remuneration for days worked would be marginally above $400, ten times less than that earned by the most senior executives. Yet the fact remains that when NFP organisations provide moderate to no remuneration and governments seek highly experienced individuals at well under market rates, there is a clear generosity and sense of community displayed by all participants.
Boardroom Partners drew attention in its latest newsletter to the question of whether Boards of NFP organisations should be remunerated, noting that a poll at the National Better Boards Conference in early July showed the attending 400 NFP CEOs and Board members were evenly split on the issue.
It is certainly not our view that governments or the not-for-profit sector need to pay significantly more than is presently the case to attract suitably qualified individuals to support community-based endeavours: there appears to be no shortage of community members willing to devote their time for worthwhile purposes. Yet we do believe it should be recognised that many individuals who have had or still have successful careers continue to demonstrate a willingness to contribute to the broader community.