Can Board Members Be Employees?

December 19, 2022

There’s a common misconception that board members are all employees of an organization–this is not true. Up until a few decades ago, board members received pensions and other benefits typically associated with being an employee, but this is no longer the case. Treating board members like employees is now seen as a conflict of interest. 

A board of directors is selected through a formal board nomination process. Board members are responsible for supervising and analyzing the performance of an organization to ensure the availability of enough resources to achieve the mission and vision of the organization. Members of the board of directors are now typically not treated as employees, but are considered as belonging to a governing body.

In addition, managing the governance of the board with employees present would be challenging, and determining how various board members are held accountable and how the interests of shareholders and organizations are protected would be difficult. The CEO and general manager of the corporation are usually present in board and committee meetings, but they don't have any voting or legislative power. 

Who Are Board Members?

Board members are not considered employees of the organizations. Usually, board members are outside experts who are leaders in their respective areas. Some board members serve on more than one board at a time. 

These members are compensated for their consultation services and participation in meetings on a retainer basis or with per-meeting fees; board members are paid nothing in terms of retirement and health insurance. In the case of public companies, board members are usually paid a considerable amount of compensation.

What Is a Board of Directors?

The board of directors conducts regular meetings to analyze the organization's financial health and Chief Executive Officer's (CEO’s) performance, as well as to manage the budget and different needs of the organization. Other than general board meetings, specialized committees organize meetings to address various matters, such as taxes, fundraising, investments, budgeting, and more. 

The board has predefined policies and procedures to add and remove different board members and hire people for key positions—such as CEO and general manager—when needed.

The Structure of Boards of Directors

A board of directors consists of a president, vice president, and secretary. Special seats are allocated for experts in different domains such as marketing, law, and client services. 

Typically, the roles of all board members are predefined. The job descriptions for different roles on the board of directors specify how many hours are required per month and how many meetings members must attend. 

Compensation of Board Members

Board member compensation varies from one company to another. For example, board members in public companies receive hefty compensation. For that reason, public companies can attract the most desirable industry leaders and experts to their boards; these board members are usually paid an annual retainer and get paid more for each meeting they attend. Fees can also vary based on the organization's industry, budget, and mission.

Nonprofit companies don't pay anything to their board of directors because their mission is to ensure that donor money is invested in making an impact for a certain cause rather than used for paying fees. In nonprofit organizations, board members are asked to donate to the organization as part of their membership.

In Summary

Board members are not regular employees of a corporation. Paid high-level executives can join board meetings, but don’t have the power to vote. 

If you are not looking to add more board members to your board of directors, perhaps consider what’s better—a board member versus a board observer; you may also want to find out whether a board president can nominate a vice president.

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