July 24, 2011 | Read Time: 8 minutes
When James Buchanan Duke signed his name to the document that would create the Duke Endowment in 1924, the tobacco and hydroelectric-power tycoon gave clear instructions that are still followed nearly 90 years later. The fund continues to have 15 trustees who meet 10 times a year, and its founding document is still read aloud on an annual basis.
And it also still follows Mr. Duke’s order to pay its board members.
Duke is hardly alone. A Chronicle analysis finds that 38 of the nation’s 50 wealthiest foundations compensate board members, awarding a total of more than $11-million to their trustees, according to the latest available informational tax returns. But in some corners, the practice is drawing scrutiny.
Lawmakers in the Massachusetts Senate voted in May to ban payments to trustees at all nonprofits, including foundations that are registered in the state. The proposal, which didn’t pass as part of a budget bill, is still waiting to be considered by the state legislature.
Emotional Debate
At the heart of the debate in Massachusetts and elsewhere are questions about whether foundations should keep giving money to trustees at a time when nonprofits face struggles to attract private and government aid because of the bad economy. The debate often grows emotional because very few charities pay their board members.
“Far and away, most foundation trustees are upper-middle class or higher, so there’s no justification for the need for compensation,” says Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, a foundation watchdog in Washington. “There’s been no data to support the contention that compensating trustees actually results in better board service.”
Many of the foundations that pay their boards say they need to compensate directors for time served and to attract talent to manage massive grant-making efforts and huge endowments.
In cases like the Duke Endowment, a philanthropy’s founder ordered payments to those who serve on their boards. Scrapping the practice would be tantamount to ignoring a donor’s intentions, they argue.
“Mr. Duke’s indenture was very long and specific as to who would receive and how much they would receive. Our trustees have always been slow to make many changes to his directives,” says Eugene W. Cochrane, president of the Charlotte, N.C., foundation. “If you start picking and choosing with donor intent, where do you stop?”
‘A Sign of Respect’
It wasn’t necessarily donor intent that led the Henry Luce Foundation, in New York, to pay its board of directors. But the practice has certainly been a foundation tradition, says Michael Gilligan, the foundation’s president.
Part of that tradition at Luce and other big foundations stems from donors’ efforts to model their boards on those that govern corporations, where compensation has long been common, he adds. In 2009 the foundation paid 11 directors a total of $279,167.
“In many cases, this was a sign of respect for the share that they took in the responsibility,” Mr. Gilligan says. “It’s seen as compensation for service.”
The Chronicle’s study of board payments at the top 50 foundations shows that the compensation paid is small compared with the amount provided in grants. The fees amounted to about 0.3 percent of the $3.8-billion foundations distributed at the same time. Among the Chronicle’s other findings:
- The average board compensation for all 417 trustees at organizations that paid board members was $26,617. The median compensation was $24,000, meaning that half were paid more and half less. In many cases, not all board members were paid; some chose not to receive any money. Dollar amounts paid also varied, often based on the number of meetings attended or how recently the board member joined the organization.
- The foundation with the largest total compensation was the Duke Endowment, whose 15 trustees received a total of $2.02-million in 2009, nearly 2 percent of the value of the grants it provided to charities that year.
- The Doris Duke Charitable Foundation of New York, an umbrella organization that manages five foundations, paid the second largest total compensation. Five of 11 board members were paid a total of $513,365 in 2009, about 0.7 percent of the total value of its grants in 2009. The W.K. Kellogg Foundation, in Battle Creek, Mich., paid the third-highest total of $505,000 to 11 trustees in its 2010 fiscal year, about 0.2 percent of the total value of its grants paid.
- Of the grant makers that offer their boards stipends, the Carnegie Corporation of New York paid the least. Only three of it 17 board members chose to take compensation, which totaled $22,800 in its 2009 fiscal year.
Donating Compensation
Board-compensation figures on informational tax returns can be misleading, some grant makers say. They note that some trustees donate what they earn to charities. At the Ford Family Foundation, in Roseburg, Ore., the majority of board members donate their compensation, says the chairman, Ronald Parker, who was paid $54,000 in 2009.
The seven-member board collectively earns $300,000, with individual fees ranging from $36,000 to $66,000. Mr. Parker, the former president of timber company Hampton Affiliates and now a college professor, says that the foundation provides $2 for every $1 a trustee donates—and is willing to make that match for trustee gifts of up to $30,000 a year.
“If there were complete disclosure about how much is expected from our board members, the hours spent, the conferences and board engagements, people would say that the foundation is getting a bargain for people of this caliber,” adds Mr. Parker, who says he donates far more to charity than what he receives in fees from the foundation. “And then they’re turning around and essentially giving it away.”
Some board members at the W.K. Kellogg Foundation also donate their compensation to other charities, says Joanne Krell, a Kellogg spokeswoman. Like other foundations, the founder, Will Keith Kellogg, also directed the organization to pay its board members when he established the foundation in 1930, Ms. Krell says.
Rod Gillum, a Detroit lawyer who is about to take over as chair of the Kellogg board, says given the amount of work it takes to participate on the board, he thinks the fees are well deserved.
“Board meetings require a tremendous amount of time and preparation and travel, so if you look on an hourly basis, it’s not unreasonable,” says Mr. Gillum. “We want to make certain that we have the very best thinkers, and this allows us to attract individuals that are able to make that time commitment.”
But some foundations, like the John Merck Fund, in Boston, have opted to forgo paying trustees.
Last year, the trustees voted to end board compensation, a vestige from the foundation’s history when it had no paid staff members and trustees did all the work of the foundation. Though it was founded in 1970, it didn’t pay staff members until 1988. And while the foundation is based in Massachusetts, Ruth Hennig, the fund’s executive director, says that when the decision was made, nobody at the foundation was aware that state lawmakers were considering banning the payments.
“People had simply reached the point where they would much rather have the maximum amount of resources available going to our grantees,” Ms. Hennig says. “There was no real debate. It just seemed like the right thing to do.”
Part of the shift came because new trustees had been joining the board in the past few years, Ms. Hennig says.
“This newer generation just feels like it’s not a practice that they are comfortable with or want to continue,” she adds. “It’s an interesting aspect of how foundation operations are changing.”
‘Psychic Pay’
Many of the biggest foundations have also decided they don’t want to pay board members.
Of the top 50 foundations, The Chronicle surveyed, 12 did not compensate their directors, including the Charles Stewart Mott Foundation, the William and Flora Hewlett Foundation, and the David and Lucile Packard Foundation.
While the Bill & Melinda Gates Foundation does not pay its board, which consists of the Gateses and Warren Buffett, 16 members of the foundation’s three advisory panels are offered an honorarium of $4,000 for each of the two meetings held annually; chairs of those committees are offered $5,000.
At the Packard Foundation, its vice president, Chris DeCardy, says, “Our approach of not compensating our trustees, beyond travel expenses, has worked well with our history and values as an organization. We have consistently heard from our trustees that they find it an honor to serve on the board.”
And while donor intent is often cited as a rationale for board compensation, sometimes donor intent holds the exact opposite.
The automotive pioneer Charles Stewart Mott, who established his foundation in Flint, Mich., in 1926, specifically stated in the charter that board members would not receive compensation.
“We have never paid, nor will we,” says William White, the Mott Foundation’s president. But he says he’s not necessarily against board pay at other organizations.
“There has to be some type of compensation whether it’s pay or psychic pay. If you’re not going to pay, the way you get good trustees is by emotionally connecting with them. They need to believe in what you are doing, and if they don’t, you probably wouldn’t even want them.”
