Bankrolling the Board The Question of Compensation

Bankrolling the Board

Co-op and condo board members are charged with the all-important responsibility to make critical policy decisions that ensure the building, the property, and their neighbors' interests are cared for and protected. It's a job that requires looking out for others, and most of the time it comes with very little gratitude or recognition, if any. Considering the amount of hours the job requires, it’s surprising that in almost all cases there is no compensation—a longstanding rule.

“Co-op and condo board seats have historically been viewed as volunteer positions. The corporations [and] associations for which they serve are not-for-profit, and the work of the board members benefits the board members as well as shareholders or unit owners,” says Attorney Stephen O’Connell, a partner with the law firm of Smith, Gambrell & Russell, LLP in Manhattan.

Governing documents normally prohibit the concept of compensation altogether. The conventional wisdom isn’t so much about the actual money, although it’s a serious financial consideration, but rather the influence salary or compensation may have on a board members’ ability to govern. “Co-ops and condos are organized and managed for the benefit of their residents living in a communal setting, not to make a profit. Non-profit organizations generally do not compensate board members,” said Attorney Mindy Stern, a partner with the law firm of Schoeman Updike Kaufman & Stern LLP in Manhattan. “No one asks board members to serve, they volunteer their time. This has been the case since the inception of co-ops and condos.”

Stern adds that unless the co-op or condo has very few units, most boards engage a management company to supervise day-to-day operations for which the management company is compensated. “This leaves the more global strategic decisions in the hands of the volunteer board members,” she says.  

While a compensation model could be determined by a stipend, a flat fee or monies provided for attending often lengthy board meetings, the practice in New York is rare, says Ronald Sher, an attorney and founding partner with the law firm of Himmelfarb & Sher, LLP in White Plains. “We neither recommend nor endorse compensation due to the appearance of impropriety or conflict of interest,” says Sher. “The same principle is applicable for both members of a co-op or condo board regarding the prohibition in receiving compensation or salary.”

Attorney David J. Byrne, a partner in the community association practice group at Ansell Grimm & Aaron, PC in Princeton, New Jersey,  agrees with his colleagues that co-op proprietary leases and bylaws usually deem that service to the board is voluntary.  “I suppose that allowing boards to pay themselves for board duties would risk malfeasance,” says Byrne. “I don’t believe that I have ever represented a co-op or a condo that has had governing documents requiring or even permitting the compensation of board members.”

Common Compensation Questions

The quandary of board member compensation isn’t subject to New York alone. Visiting provides queries from residents and board members in Michigan, Indian, Pennsylvania and Ohio, among others. In all posts, no board members were seemingly compensated. Florida’s Condominium Act states, “Unless otherwise provided in the bylaws, the officers shall serve without compensation and at the pleasure of the board of administration. Unless otherwise provided in the bylaws, the members of the board shall serve without compensation.”

New York State law is similar. According to the state's Not-for-Profit Corporate Law, “Unless otherwise provided in the certificate of incorporation or the bylaws, the board shall have authority to fix the compensation of directors for services in any capacity.”

In many cases, the major issue for board members receiving compensation is a conflict of interest. Charged with the responsibility to vet and hire third party vendors and contractors, a paid board could theoretically sway votes in favor of a self-serving cause. 

“I am unaware of any such arrangements with board compensation, and would counsel the co-ops and condos I represent against it,” said Stern. “It would lead to people seeking a position on the board for personal financial gain rather than serving the best interests of the co-op or condominium.” Stern adds, “There is no way to cure the inherent conflict of interest that inevitably would exist if board members are paid for their service.”

No Perks for You 

For most board members and residents attending board meetings, “compensation” may amount to coffee, snacks and soft drinks provided by another board member. And while a board may budget for a holiday party that services the entire community, the building's finances are not allotted to support the governance of the building. In short, most often there are also no “perks” for board members.

“Giving a perk to a board member is no different than giving them cash. It would motivate people to serve on the board for the wrong reasons, and could lead to an abuse of power,” says Stern. “Granting a board member a free parking spot, gym membership, or storage unit, for example, would reduce the co-op or condo’s revenue unnecessarily.”

Stern further explains that if board members are given priority over other shareholders or unit owners for services provided by staff, or access to common amenities such as a backyard grill, or a rooftop terrace, it could “easily lead” to abuse of that privilege at the expense of other shareholders or unit owners. “This is not what shareholders and unit owners expect when they purchase a co-op or condo unit,” she adds. 

There are situations where a “perk” can be loosely defined. These non-monetary compensation practices normally have logical reasons that are in place due to unusual circumstances. And, the perk doesn’t influence the governing body, but rather supports a collective effort.  “The only nominal non-monetary compensation or perk that we consider acceptable is providing or serving an inexpensive dinner during monthly meetings since board meetings are so often conducted prior to normal dinner hours, and beyond.  It is customary for the corporation to provide, at the corporation’s expense, takeout food to those directors and invited professionals in attendance.

An issue remains deciphering whether or not compensating a board member would be considered an illegal act. And if it’s not outright illegal for boards to get paid, how might a board go about implementing a compensation structure for itself? Sher responds saying, “The board would be required to amend the bylaws and governance documents by the affirmative vote of a supermajority of shareholders or unit owners to authorize or permit the payment of compensation or salary.”

Money: A Dangerous Influence 

With countless co-op and condo clients, O’Connell explains that he came across only one board was ever compensated. However, this same board quickly repealed the provision in the bylaws. While this was many years ago, he recalls each member receiving a yearly stipend of approximately $2,000. 

“There is danger in compensating board members. If paid, the members are susceptible to criticism and accusations of them not doing what they are paid to do. If not paid, it is harder to criticize,” said O’Connell. “If the compensation is to be meaningful to a board member, it could become a genuine expense of the building and likely not a welcome additional cost, especially when very few boards get compensated.” Byrne agrees that compensation of board members brings with it an inherent appearance of conflict, although he offered another possible way around the proverbial barn. “Perhaps if compensation decisions are made by an owner-selected compensation committee,” he offers. 

In many respects, board governance is similar between co-op and condos, but there are differences—more time and expertise is required of co-op board members due to the handling of building financing, tax certiorari, purchase approvals and the like. As such, O’Connell says there could be a better compensation case made for co-op board members. “If a board were intent on receiving compensation, I suspect that they would have to make the case of the time commitment and effort involved, and perhaps the particular expertise of the board members and the value given,” he says. “As many cooperatives have a fair amount of apathy with only light volunteerism, I would suspect that the non-board member shareholders might be swayed to permit some compensation out of fear of losing the volunteers and be left with no board.”

For the majority of boards throughout the greater New York region, however, it should be assumed that a position on the board is purely voluntary. The concern of the board member should be, first and foremost, his or her fiduciary responsibility to the building and its residents, not a material or tangible reward for services provided.  

“In any event, any compensation to be paid to a board member would likely be seen by the board member as inadequate for their effort, so it is generally better to have the members come in knowing that they will not be compensated,” says O’Connell.

Freelance writer W.B. King is a frequent contributor to the Cooperator.

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