Compensation for Board Members

Started by AlbertC • 38 replies • 3874 views

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AlbertC (New Jersey)
Posts: 15

Posted:

One of my director associates and I were concerned about lack of candidates for the upcoming election to fill Board vacancies. We wanted to get a consensus of other organizations to see if any of them are, or have considered any remuneration to attract new candidates to their Boards?

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Albert,
I am probably having a bad night, but your post strikes me as a question that was thrown out into the crowd at half time of the monday night football games at some bar somewhere.

I really think you can find a lot of help on this subject by using the search section, upper right this page.

But,the way you pose such a complwx issue, so "off handedly," is truely amazing.
Try writing some history of your HOA or is it a Condo or should we just guess. Is your association 1 five unit condo a twelve unit HOA or a 4000 unit 100 acre HOA' Do you have professional managers now, how many members on your board, how are your financials now, do you have a reserve, how many forclosures, how many lawsuits against you know, are you members happy, unhappy, have you discussed this with your members.

Turn the tables for me Albert and let me ask you if my association should consider paying menbers that volunteered to help manage my association.

The answer to your question as posed is: Yes.

MicheleD (Kentucky)
Posts: 4,491

Posted:

It wouldn't matter if we considered paying our board members at all, since our governing documents PROHIBIT it.

If yours prohibit it, too, then you most definitely will have to get the requisite number of the membership to agree to pay your directors, after following the prescribed method for amendments in your documents.

But, as a rule, there are very few situations where I feel HOA board members should be paid.

It would be a very rare scenario, indeed.

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

I see no problem in providing compensation for directors of the association if your governing documents allow. Since homeowners associations are not voluntary, that is, membership is required with unit ownership, it makes sense. Many not-for-profit organizations compensate board members, particularly those that have high expectations of their board members.

This issue has been discussed at length in earlier threads as Robert notes.

You may wish to also consider compensating officers of the association to reflect the additional time they spend on association affairs.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Well, Albert,
Above is your answer by one of our esteemed contributors. If you want to accept this as face value, I wish you all the luck in the world.

George is right, no doubt about it, associations of all kinds pay directors. Enron comes to mind and a few dissimilar names but can be classified as an Enron. We recently had a poster that stated their association was paying an adviser to the Management at 85K/year. That may have been legit also? I see high rise pictures of Miami Beach where huge multistory high buildings are being vacated because they can't pay the bills.

But, for me, Devil stay away from my door, and do not lead me into any association that pays their directors. It is just not for me.

AleshaZ (Colorado)
Posts: 10

Posted:

We are not allowed to be compensated but there is satisfaction in planning a community shindig or making landscaping decisions. I would not offer compensation but the community service/involvement aspect. People like to be a part of something if they can see they are making a difference. I would come up with the reasons that the current board came on and advertise those. One thing that we've done is EMBRACE those who are our biggest critics and now we have members who see how hard it is to get things done that they once belittled us for. They are now our biggest advocates for new members as everyone knows that if THEY are saying it won't work, it REALLY won't.

SusanW1 (Michigan)
Posts: 5,202

Posted:

We compensate our Road Chairman (not a board member), the Board Secretary and Board Treasurer and the state certified Water chairperson (a Board member). In addition, we can vote in an additional per hour rate for the Treasurer, if she submits and justifies extra hours. Ditto the Water Chairperson.

The alternative? Hire a Management Company to coordinate and hire our all the above jobs.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Susan,
Please give us the size of your HOA and how many units and an annual gross income?

SusanW1 (Michigan)
Posts: 5,202

Posted:

We are a private subdivision (single family homes), incorporated in 1948 (established in 1923) with our own water system (well and pipes to each improved lot), roads, community center and beach. We are an island with canals winding throughout, connected by 17 car-carrying bridges.

250 homes x $750 per year. 60% MUST go into the Reserve Fund for maintaing the water system and bridges.County will not take over streets or bridges. Bridges are one lane. Homes in the sub. are going for from $100K to 1 Mil. - a real mix.

Just re-doing the decks on the bridges will cost us close to 1 mil. in 20 years.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Alesha,

Several good suggestions here, good thought process.

As to getting your critics on your side, Lyndon Johnson was often quoted as saying he would rather have his detractors inside the tent pissin out, than outside the tent pissin in.

It is a tricky thing to manipulate and the only hope I can see in a HOA situation is all parties must be willing to put the associated first and use that as common ground to get all the rest done. I would caution to be careful as some of these differences in agendas cause some deep seated resentments.

Wouldn't it be wonderful if we could talk about associations and their health without all the garbage thrown in.

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By RobertR1 on 03/03/2009 5:59 AM

But, for me, Devil stay away from my door, and do not lead me into any association that pays their directors. It is just not for me.

Couldn't agree with you more!!

I like the visual, too!

AnneM2 (North Carolina)
Posts: 30

Posted:

Our by-laws prohibit it but, legalities aside, may I suggest that if you have to pay an owner to serve on his own HOA Board, you will not get a quality member. The basis for service must be altruistic. My HOA could not afford me if I was compensated adequately for my time, energy and expense.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

AnneM
Groucho Marx said: "I would not join a club that would have me as a member."

Not necessarily to the point but still............

JohnK3 (Pennsylvania)
Posts: 967

Posted:

Our ByLaws specifically allow the S & T (in our case, one person) to be compensated at the discretion of the BOD. When we went self-managed, the BOD anticipated there would probably be situations where the BOD would be called on to undertake work not outlined in the ByLaws' duties descriptions, and as George noted, supra:

>>>You may wish to also consider compensating officers of the association to reflect the additional time they spend on association affairs.<<<

that's exactly what we decided - a modest hourly rate to be approved in two hour units before the "additional time" (not covered by our typical duties) was undertaken. Being self-managed, it was either that or hire somebody on the outside (at probably much higher rates) if the need arose.

This came in handy six months later when we had two situations that needed handling: a rather complicated insurance claim and the supervision of our biggest project to date, the critical rehab of our 4 ponds.

The earned units were few and the results thus far are favorable. And again, somebody had to do the work.

So my adivce to the OP is that it depends on your HOAs situation. But using a comp scheme to simply attract BOD members to undertake what they'd otherwise be volunteering for doesn't seem like a great idea for the reasons others have noted.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

ByLaws specifically allow the S & T (in our case, one person) to be compensated at the discretion of the BOD. When we went self-managed, the BOD anticipated there would probably be situations where the BOD would be called on to undertake work not outlined in the ByLaws' duties descriptions, and as George noted, supra:

>>>You may wish to also consider compensating officers of the association to reflect the additional time they spend on association affairs.<<<

that's exactly what we decided - a modest hourly rate to be approved in two hour units before the "additional time" (not covered by our typical duties) was undertaken. Being self-managed, it was either that or hire somebody on the outside (at probably much higher rates) if the need arose.

***************************************************

Good post John,
I think I have concluded this self management should be considered by many associations.

But, there are limitations and since you seem happy with how yours is working, how about telling us a little about your Regime, or what ever.

There should be certain criteria that has to be considered if self management is to be considered. Number of units comes to mind, also economic range of owners, value of properties, why make the change, what is your apathy factor in your association, is the board now effective, are you members happy? If you would give us a broad overview of how and why you all got it done and include a post battle critique.

Might help some folks contemplating this kind of change.

JohnK3 (Pennsylvania)
Posts: 967

Posted:

Quote:

Posted By RobertR1 on 03/04/2009 10:11 AM
ByLaws specifically allow the S & T (in our case, one person) to be compensated at the discretion of the BOD. When we went self-managed, the BOD anticipated there would probably be situations where the BOD would be called on to undertake work not outlined in the ByLaws' duties descriptions, and as George noted, supra:

>>>You may wish to also consider compensating officers of the association to reflect the additional time they spend on association affairs.<<<

that's exactly what we decided - a modest hourly rate to be approved in two hour units before the "additional time" (not covered by our typical duties) was undertaken. Being self-managed, it was either that or hire somebody on the outside (at probably much higher rates) if the need arose.

***************************************************

Good post John,
I think I have concluded this self management should be considered by many associations.

But, there are limitations and since you seem happy with how yours is working, how about telling us a little about your Regime, or what ever.

There should be certain criteria that has to be considered if self management is to be considered. Number of units comes to mind, also economic range of owners, value of properties, why make the change, what is your apathy factor in your association, is the board now effective, are you members happy? If you would give us a broad overview of how and why you all got it done and include a post battle critique.

Might help some folks contemplating this kind of change.

Thank you, Robert. In response:

We have 21 SFDs. Median interiors are 3,850 sq. ft. Values have taken a hit in the past year, but even as we haven't had any sales since Summer 2007, talk on the street is that values are holding much better than in many areas in the country. We went self-managed when the previous/only PM (since 2001) wanted to increase dues to give them 1/3 of the annual gross (raising from the 2007 per unit quarterly $226 to close to $300). Our 3 member BOD is very active and does most everything including tasks we didn't sign on for, like removing and reinstalling our big pond's fountain to save us $1,400 a year. Membership is generally, make that essentially, apathetic, but very happy with our stewardship as in 2009 we have lowered dues while increasing services (mostly all landscaping related) via BOD work and especially shopping vendor bids which our PM didn't. We have no foreclosures, everybody (so far) keeps current with dues, and have no ByLaw or CCR violations.

The switch took a lot of initial work, but now that we've got our system running, it's a simple matter of collecting dues and paying bills. We bombard Membership with info via our emailed Updates that include all (though few now) BOD decisions and detailed, running financial reports.

At the end of the day, this success is about 3 guys who were willing to invest the time. We all had some personal, disparate reasons for joining forces, but they all came down to us believing we could deliver a better bang for our own bucks, and those of our neighbors.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Thanks John,
I certainly hope a ton of folks get to read your post. Really, it epitomizes what is done in a lot of associations. Maybe not paying the Board especially, but a few people saying to hell with this, I can do it better and actually do that.

I am of the opinion you can argue covenants, laws, rules, finances, regulations, whatever, but many times it comes down to a few people making a difference. I suspect a large majority of regimes operate just that way............bottom line. Board members don't attend meetings, owners ignore everything, no one volunteers, couple folks say, letsget together and fix this place and they make it work..........of course , a lot of it is by default, but it is what is is.

KirkW1 (Texas)
Posts: 1,665

Posted:

I would say that of course you have to abide by your governing documents. But those documents can usually be changed. Thus, if they prohibit compensation of Board members, that could be changed. Yes it would take work. But it is possible. And perhaps it is a good idea to try and change them.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Kirk is right, of course the docs can be changed. However, b/4 doing so I strongly suggest you check out the state's nonprofit corp statutes. The AZ statutes have a section which prohibits the compensation of directors. If your state has a like statute, an amendment to your docs will be of no value as state law would prevail.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Sorry, I should have said, "state law MAY previal"; it would depend upon the wording of the statute.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

To Mary and Kirk,
In a certain sense, isn't changing the documents to pay directors sort of like buying "A pig in a poke."?

Of course this means you are buying a pig that is inside a sack (poke) and have no idea what kind of pig it is, and to top that you don't know what it is going to cost. Now if you are doing it because you have a certtain individual selected for the job, that is suspect also.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Robert,

Frankly I don't believe the officers/directors should be compensated. HOAs are set up as volunteer orgs. Volunteer to me means doing something for nothing! And, actually, wouldn't it be like paying oneself? The assn's operating funds come from its members, right?

GlenL (Ohio)
Posts: 5,491

Posted:

Quote:

Posted By GeorgerwilliamsW on 03/03/2009 2:54 AM
I see no problem in providing compensation for directors of the association if your governing documents allow. Since homeowners associations are not voluntary, that is, membership is required with unit ownership, it makes sense. Many not-for-profit organizations compensate board members, particularly those that have high expectations of their board members.

This issue has been discussed at length in earlier threads as Robert notes.

You may wish to also consider compensating officers of the association to reflect the additional time they spend on association affairs.

It might seem like a good idea in theory (many things do) but you better have protections in place. This is what happened in AZ of all places, names redacted: http://www.azcapitoltimes.com/freestory.cfm?id=10599

The board began paying ********* a salary out of association funds in 2003, the complaint said. It made his pay official in a February 2006 meeting, voting to pay him $75 an hour, in addition to a $5,000 retainer.

Since early 2006, ********* received more than $100,000 a year from the association’s fund, the complaint said. That was in addition to travel expenses, including hotels, airfare and entertainment.

State law bars HOA board members from getting paid. According to the Feb. 24, 2006, DC Lot Owners minutes, the board said ********* wouldn’t be paid for his board work, but as an independent contractor.

Melanie *********, +++++++'s attorney, said ********* billed the association for everything but time actually spent in meetings. That included flights to meetings, even though he lived in the community.

In addition, board members had decided not to pay HOA assessments. As part of the HOA assessment, each lot holder pays $160 (Two of the Board members owned 3000 lots) a year. But the board members voted to exclude their holdings from the assessments. That meant lost revenue of $480,000 a year, according to the complaint.

Studies show that 5 out of 4 people have problems with fractions

MicheleD (Kentucky)
Posts: 4,491

Posted:

Wow.

Glen. That's a case for "unintended consequences" if I ever saw one!

But for the record, as a rule, I don't think HOA board directors or officers should be paid.

If they are doing enough "work" that they require hourly-rate reimbursement, consider giving up self-management!

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

I couldn't agree more. If you are going to compensate board members, then it is vitally important to have controls in place and complete transparency.

The article you reference goes well beyond compensation. It shows how homeowners associations can be taken over too easily by corruption even in states such as Arizona that seem to have numerous laws to regulate homeowner association operations. There are equally corrupt situations that have recently been brought to light in Nevada, particularly in condo associations.

As I have said several times before, homeowners associations are a social and cultural work in progress. In the current economic climate, we are finding out that there are significant downsides to association living that counter the benefits in better times.

I would advocate far more transparency than we have now. Under most state statutes associations are incorporated as not-for-profit, but they do not have not-for-profit status under federal IRS regulations. That alone opens up opportunities for nefarious activities.

As a start homeowners associations, as not-for-profit corporations, should be required to disclose the same information that a 501(c)(3) corporation is required to provide on the IRS form 990. Yet, in another thread, I read attitudes from posters that information should be kept confidential.

MaryA1 (Arizona)
Posts: 7,043

Posted:

I've read about this case. Frankly, it would be hard to regulate HOAs so that something like this would never happen. These individuals were able to take over the assn because they owned a majority of the lots. Would it be fair to pass legislation barring an individual from owning a majority of the lots in a s/d?

Also, just to set the record straight on HOA law. There is no HOA statute prohiting board members from being compensated as the AZ Capitol Times article stated. There is a nonprofit corp statute which says: "Unless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors." Ref. ARS10-3812 Remember these statutes apply to all nonprofit corps not just HOAs. There is no statute addressing this topic in the HOA specific statutes.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Mary,
It is not my intent to "bust your chops' and I accept, as you pointed out, there is no law in AZ state Statute on HOA that deals with compensating directors.

Given all that, will you follow your normal M.O. and declare then that; the Board has the right to compensate them since there is no specific authoritative direction?

I would believe there are circumstances that compensation of Board members makes sense, and I reference Susan's HOA in Michigan. Not because I think this is the right think to do, but it works for them.
They have a LONG history and from where I sit it appears reasonable and prudent.

Or is any of this relevant to the issue?

MaryA1 (Arizona)
Posts: 7,043

Posted:

Robert R,

I said there is no HOA statute addressing this issue. However I did point out the nonprofit statute which HOAs must also follow does address the issue. So, in AZ the HOA directors can be compensated, unless the bylaws and articles of inc say differently. That is in accordance with the nonprofit corp statute.

EllenS1 (Florida)
Posts: 1,148

Posted:

Many owners already think the board of directors act in their own interests. Not saying they do but we all have experienced being accused of this. Receiving pay would make this worse. Of course, the accusers never do anything but complain while they sit on their butts. Maybe better would be hiring someone outside to perform some of the jobs and let the complainers pay for them.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Ellen,
And for all. Give Susan of Michigan post a read on how her association works. I am not saying it would work for all, it won't. But in her case, it is innovative and seems to be long lasting and effective. I mention it just to suggest that maybe, there is a solution to some of this stuff, if you generate some uniqueness about your association requirements. This would take a lot of work and a sifting process over time but in the end, maybe a new day arises, that works for you. It could be a bunch of small tweaks in the present operation system or maybe something drastic. Just a thought. I think we all recognize these associations are never stagnant and change goes on all the time. Direction of the change might be important.

GeraldT4
Posts: 1,022

Posted:

AlbertC - Perhaps you should try reading your governing documents first to see if it states Board members are not to receive any compensation. If it does, than you'll have to amend the governing documents first before compensation. If you are like one new jersey association i am oh so familiar with, ideas that come from those appointed and self-appointed at the front of the table to amend governing documents to make exceptions for a few will be nothing new.

AlbertC (New Jersey)
Posts: 15

Posted:

To Gerald and any other that might be getting the wrong idea of the question presented. I am already a trustee and this would not apply to me. What I am suggesting is a one time incentive to attract members to run for office. We have a two member term experation every year and it is tough to recruit members to run. This might stir up enough interest and result in getting some dedicated people that otherwise would not have at least served one time.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Albert,
Have you given any thought to paying a good board member more money than a bad board member. If the good guy does his job and works hard and spends 100 hours in two months, are you going to pay him twice as muchas a bad guy that only works 50 hours in two months.

Sorry Albert, for me, it is a bad idea. Don't look for trouble and remember the Board is charged with a fiducary responsibility to spend money wisely. Our association needs more money to run the place properly. Some condos are high maintainence structures, especially on the ocean and money is always tight. You got any extra cash floating around, put it in the Reserve fund, lower the assessments, spend it on some inhancement project, re-write your long range plan and I am sure you will find a need for any money.

Also Albert, the criteria is not that you will not get paid, the criteria is: can you justify spending money under your CC&r's that probably require you spend it for the health of the association. Is your Board qualified to pick and chose who you are going to pay, and what if who you select to be paid loses the election. Of course you can say you will pay whoever wins the election, isn't that buying a pig in a poke?

MicheleD (Kentucky)
Posts: 4,491

Posted:

Quote:

Posted By AlbertC on 03/11/2009 8:41 PM
To Gerald and any other that might be getting the wrong idea of the question presented. I am already a trustee and this would not apply to me. What I am suggesting is a one time incentive to attract members to run for office. We have a two member term experation every year and it is tough to recruit members to run. This might stir up enough interest and result in getting some dedicated people that otherwise would not have at least served one time.

Rather than investing money in a one-time incentive (though I have no idea what that is, or how you would pull it off), why not invest some money into a PR program to inform the neighbors about the association, the role of the board, and their right to be a part of it.

You could contact a local college or community college and see if they have any advertising or marketing classes that would like to take the campaign on as an intern project or something like that.

AlbertC (New Jersey)
Posts: 15

Posted:

Robert
Thanks for taking the time for answering this but please read the post and not take it out of context. I did not say “per-per-do” I said as an incentive to recruit new members to run and to possibly ignite some inner community spirit that they might not have had, had they not at least tried a first term. I don’t know if this would work, I am only brainstorming. We have the same problem that is stated on many of the posts that I have read on this site, which is apathy.
As to Michael’s reply, we’ve tried everything that you suggested. We do it continually, but it’s still hard to get candidates to run.

AlbertC (New Jersey)
Posts: 15

Posted:

Robert
Typo: Should read "pay-per-do"

GeraldT4
Posts: 1,022

Posted:

AlbertC - I'm not getting the wrong idea. First, read your governing documents, because I strongly suspect it's written that trustees are not to receive monetary compensation. If it did stipulate compensation was possible, I'm sure your trustees would have gotten by now. It is you, and ONE other trustee that have come up with this idea of a monetary incentive for volunteer work. How many other members are in the entire association. Don't you stop and think about what's inheritantly wrong with the fact that two (2) out of how many members thought of this idea of compensation? Very very bad idea and one that you will have to more likely than not get the membership to vote upon. Why not try the multitude of other possibilities for attracting trustees. Such as seeking the input of the membership PRIOR to conjuring up ideas. Cracks me up that you and ONE other trustee were thinking about this rather than the multitude of other possibilities that good trustees are empowered to accomplish.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

GeraldT,
Blunt and true Gerald.
Albert, you don't have to convince us of anything, you just have to deal with your association.

Michele's idea is excellent, it really is, and I was skeptical of this kind of stuff. Our 2400 plat umbrella POA association on the island had to get out a vote to pass curcial amendments to our documents that finally would give homeowners the control they needed to really be the management of our island and not have to abide by the developers influences. Keep in mind we have about a 80/20 nonresident to resident ratio. They needed I think around 70 % of the vote (total votes, those not voting would be counted as a no. They hired a marketing firm and spent several weeks before the vote blasting the owners with the necessity of this vote passing. I believe they got over 90 % of the total vote as a yes) Michael always has good ideas, I would take her advice also.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Regards Pay per do.

I never said anything about a Pay per do either.

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