Director Compensation: They Deserve It -- Or Should

[Written with the assistance of Margaret Goldstein and Josh Cohen.]

Director compensation: the idea is commanding more and more attention among smaller cooperatives. Leadership and management hold it up as a panacea for weak or ineffective boards of directors, but is it? What will compensation offer? Will it give the co-op better board members? Will it make the co-op's directors better decision-makers? Will it make board meetings more effective?

The answer is yes. . . and the answer is no. Certainly compensation for board members is no substitute for good leadership, strategic recruitment, or effective management of a board of directors. Nor is it a substitute for other, public forms of recognition for director leadership and service. But, the effect of director compensation can be improvement in board performance because of the message sent to directors and to the co-op's community, and most of all because of the expectations and environment created.

But They're Volunteers, Aren't They?

Holding a voluntary position in a community organization, cooperative or otherwise, can provide the civic-minded individual with a sense of pride, a valuable learning experience and a social outlet. Isn't this enough for the voluntary co-op director? Is it necessary to provide monetary compensation in addition to these more ethereal rewards? You bet it is! In addition to simply compensating directors for direct expenses incurred (meals, travel, hotel or child care costs, for instance), monetary compensation will have a significant effect on existing and potential board members, on the cooperative's membership and management, and on the community.

Providing some type of stipend or compensation is much more of a symbolic act than an economic act. A monetary reward tells directors, "You are a valuable asset to our business. You hold a key management position, and deserve compensation for the skills and experience you bring to our organization." And, let's face it, a director's sense of commitment and investment in the cooperative can be heightened if his or her skills have been acknowledged in this way.

Even more importantly, monetary compensation ensures that "we get what we pay for." If the cooperative wants dedicated and experienced directors and expects excellent board performance, it must be willing to provide meaningful incentives to secure the best possible candidates from throughout its membership and its community, and it must be prepared to provide at least nominal compensation to those who hold key decision-making positions in the cooperative business.

Co-ops which provide compensation will find, naturally, that providing a monetary incentive makes recruiting board candidates a little less like pulling teeth. Andjust as it assists in recruitment, compensation can have the desirable effect of helping co-ops retain board members once their terms expire. Compensation assures board members that their time and energy are valued. It also helps assure co-op members that their elected directors take their vital and valuable role in the cooperative seriously. And members will he more likely to respect and respond to the board's direction if they are actually paying to have a job well done.

How Much And How?

How, then, are directors best compensated? Director compensation does not in any way provide economic rewards equal to those of the job market. No one makes a living being a co-op board member, and board members should not feel that they've collected enough of an hourly stipend to be provided with an hourly wage. Meetings and board business should not drag on unnecessarily until directors make it worth their while. The cooperative needs its board to fulfill certain essential roles and tasks; whether this takes 15 or 150 hours per year is not important so long as the job is done properly and effectively.

Board members, then, like the salaried professional, should receive compensation for their position in the cooperative, not for time spent on cooperative business. A yearly stipend -- quarterly at the very most -- will provide a symbolic rather than economic reward to cooperative directors, and will carry the message that the director is being compensated for skills and dedication, not for time spent in meetings.

In the same vein, the Board President (or Chair), who should be carrying a greater share of the board's work than other directors, should be compensated in excess of other directors. Special compensation for Board Presidents typically consists of a larger stipend, but sometimes also includes the use of a car, medical insurance coverage, etc. Again, if we expect and desire Board Presidents to carry a greater burden, we should reward them appropriately, and the President thus acknowledged will feel a greater obligation and commitment to the cooperative.

Survey Results

Generally, cooperatives across a variety of sectors do provide some type of monetary compensation to their directors. In addition to an annual stipend (or in some cases quarterly, monthly and even by the meeting), cooperatives by and large reimburse directors for their out of pocket expenses at cost, or establish some standard per diem for travel, meals and lodging where appropriate. Additional forms of compensation run the spectrum from child care provided at meetings, to life insurance, to rustic retreats for directors and their spouses. A less tangible, but perhaps more valuable form of compensation is director training and professional development, with many cooperatives covering fees and expenses for directors to conferences and training events.

In a recent survey of all types and sizes of cooperatives, cash stipends provided to directors ranged anywhere from $5/month or $7/meeting to $2500/year or $500/meeting. Close to 60% provide a travel allowance, 55% provide directors and officers liability insurance coverage, and over 70% provide for education and professional development.

Food and consumer goods cooperatives are unique in that they alone provide a discount on purchases as compensation to their directors. Approximately 31% of the food/consumer goods cooperatives surveyed listed a discount as a form of compensation provided to directors. While the discount -- ranging from 5% to 30%, with an average of 16% -- is enticing and encourages patronage, it should nevertheless be accompanied by some sort of cash stipend. The intangible benefits achieved by providing compensation to directors are not nearly as powerful when that compensation is only in the form of a discount at the cash register; even small checks can make a much more significant statement. Only 28% of the food/consumer goods co-ops surveyed provide some sort of cash stipend to directors, whereas in the agricultural sector 82% of the co-ops surveyed supply cash compensation.

Given that the majority of the food and consumer goods cooperatives responding were small (75% were under $5 million in annual sales), their track record for providing additional forms of compensation is quite noble. Nearly 65% provide some form of education and training to directors, and 25% provide full director and officer liability insurance (usually a costly undertaking). Their record for providing any sort of special compensation to the Board President, however, is not quite as admirable, with only 11% providing an increased cash stipend or per diem.

Remuneration Benefits the Whole

If cooperatives expect board members to take seriously their role as half of the co-op's key management team, they must provide some rewards, acknowledgement and compensation for their contribution of expertise, time and skills. Directors are in a position of high scrutiny and are expected to walk the fine line between acting as members' representatives and acting in the best interests of the corporation as a whole; their role is to be decision-makers for the cooperative, advisors to management, and trustees to the member/ owners. Don't rely too heavily on the altruism of the skilled, competent cooperative member for this difficult and important position. Any volunteer, regardless of how noble or worthy the cause, requires some recognition and reward.

As it is, the co-op is in competition with every other business and community group in its area for the cream of the leadership crop. Compensation will not only send a powerful message to potential candidates, but it will also break the "lowest common denominator" mentality. Make sure that serving on the co-op's board is regarded as a position of prestige and honor. Be assured that the effect even nominal compensation will have on the co-op's efforts to recruit and retain qualified, skilled directors will be well worth it.

See other articles from this issue: #005 June - July - 1986