Why Transparency Matters When Your Not-For-Profit & Charity Board Members Receive Remuneration

Introduction

For Australian not-for-profit (NFP) organisations and charities, the decision to remunerate board members introduces a critical layer of public scrutiny. Because these organisations rely so heavily on public trust, ensuring transparent governance around board remuneration is not just good practice—it is fundamental to their integrity and reputation.

Effectively managing this process is crucial for any NFP board. This guide provides essential information on why transparency is so important when board members receive remuneration, from meeting legal and Australian Charities and Not-for-profits Commission (ACNC) reporting obligations to maintaining the confidence of donors, members, and the wider community.

Why Remuneration Transparency is Essential for NFP Boards

Building & Maintaining Public Trust

For any Australian NFP or charity, public trust is a foundational asset. Transparency in the remuneration of board members is essential for building and preserving this trust with donors, supporters, and the wider community.

People who contribute to a charity want to know how the sector spends its funds, and openness about payments demonstrates integrity. When a charity is transparent about its decision to remunerate its board, it reassures the public that the organisation is managed responsibly.

Making the details of payments or the policies that govern them available is good practice and shows a commitment to transparency. This proactive communication helps prevent suspicion and maintains the confidence necessary for the charity’s reputation and ongoing success.

Ensuring Accountability to Your Stakeholders

Transparency is a primary mechanism for demonstrating accountability to a charity’s key stakeholders, including members, grant-makers, and supporters. When board members receive remuneration, being open about the process ensures these groups that finances are being managed in a way that furthers the organisation’s charitable purpose.

This is a crucial aspect of good governance. Accountability can be achieved through several transparent practices:

• Publishing the details of payments made to board members in a remuneration report for presentation at the annual general meeting
• Submitting the details of board remuneration to members for their formal approval
• Providing opportunities for stakeholders to raise concerns or ask questions about these payments, which aligns with the requirements of the ACNC Governance Standards

Mitigating Reputational & Legal Risks for Your Charity

Open communication about board member remuneration can insulate an NFP from significant reputational damage and legal exposure. Secrecy around payments can lead to perceptions of improper financial benefits or conflicts of interest, which can harm a charity’s standing in the community.

Communicating the decision-making process serves as a key insulating factor against these risks. Furthermore, transparency is critical for managing compliance and legal risks.

A common issue arises if a director is involved in decisions about their own pay. To avoid this, a charity must have clear and transparent conflict of interest procedures. Failing to manage these situations properly can lead to poorly managed pay structures and potential commercial litigation, making transparency not just good practice but a vital risk management tool.

Understanding the ACNC’s Legal Requirements for Transparency

Defining Key Management Personnel & Remuneration

The ACNC provides specific definitions to ensure clarity in reporting. For an NFP, understanding these terms is the first step toward meeting legal transparency obligations when board members receive remuneration.

Key management personnel (KMP) are the individuals who have the authority and responsibility for planning, directing, and controlling a charity’s activities. This group includes not only board members but also senior staff like the CEO or chief financial officer.

Remuneration is defined broadly and covers all forms of payment provided by the charity in exchange for services. It is not limited to a simple salary or fee. The ACNC requires the disclosure of a wide range of benefits, which include:

Remuneration Category	Examples
Standard Payments	Wages, salaries, bonuses, and employer superannuation contributions
Non-Monetary Benefits	Use of a car, housing, or medical care
Post-Employment Benefits	Pensions and other retirement packages
Termination Benefits	Payments provided upon cessation of service

Reporting Obligations Based on Your Charity’s Size

The legal requirement for a charity to report KMP remuneration to the ACNC depends on its size, which is determined by its annual revenue. These obligations ensure that transparency is scaled according to the organisation’s capacity and public interest.

The reporting rules are structured as follows:

Charity Size	Annual Revenue	ACNC Reporting Requirement for KMP Remuneration
Large	$3 million or more	Reporting is required.
Medium	$500,000 to $2,999,999	Reporting is conditional (required for General Purpose Financial Statements, optional for Special Purpose).
Small	Below $500,000	Exempt from reporting.

For those charities required to report, this information must be included when submitting the Annual Information Statement.

How to Implement Transparent Board Remuneration Practices

Developing a Clear Board Remuneration Policy

For any NFP or charity that chooses to remunerate its board members, establishing a formal policy is a critical step towards ensuring good governance. A clear and comprehensive board remuneration policy provides a structured framework for making decisions, which is essential for accountability and transparency.

This document should be accessible to stakeholders and clearly articulate the organisation’s approach to paying its leaders. An effective remuneration policy should detail several key processes to ensure fairness and consistency.

The core components of such a policy include:

Policy Component	Description / Key Elements
Determination Process	Outlines how remuneration amounts are decided, potentially by consulting similar charities, using benchmarking data, or engaging external consultants.
Approval Process	Specifies how payments are formally authorised, such as through a vote at the AGM, approval by a subcommittee, or other formal mechanisms.
Dispute Resolution	Contains clear procedures for addressing concerns or disputes, potentially through commercial mediation, from stakeholders regarding board member remuneration.

Managing Conflicts of Interest in Remuneration Decisions

When board members receive remuneration, it is crucial to manage any potential or actual conflicts of interest that may arise. A conflict of interest can occur if a board member is involved in making decisions about their own pay, which can undermine the integrity of the charity’s governance.

To mitigate this risk, your NFP must have robust procedures in place. Implementing clear transparency and conflict of interest protocols, a key aspect of commercial and business law, is a fundamental requirement.

For instance, a common and effective practice is to establish a dedicated remuneration subcommittee. This committee should ideally include independent members who can make impartial decisions about board remuneration, thereby removing any perception of self-interest and reinforcing the organisation’s commitment to integrity.

Conclusion

For Australian NFP organisations, transparency when board members receive remuneration is essential for upholding good governance and meeting legal obligations. This commitment to openness is fundamental to maintaining stakeholder trust, ensuring accountability, and protecting the charity’s reputation.

If your NFP board is navigating the complexities of remuneration, contact our not-for-profit and charity lawyers at LawBridge for specialised legal guidance to ensure your governance practices are transparent and compliant.

Frequently Asked Questions