Remuneration, To Pay or Not to Pay? - Australian...

Remuneration, To Pay or Not to Pay?

Status: Master Version: Three Date: 3 August 2011Software: InDesign © Australian Strategic Services

Remuneration, To Pay or Not to PayRemuneration Observations & Considerations for Boards

[email protected] Remuneration Observations & Considerations For Boards


Remuneration, To Pay or Not to PayRemuneration Observations & Considerations for Boards 1

ContentsIntroduction ...................................................................................................................2The Big Picture Of Community Businesses (Not For Profits) ................................... 3-7Community Businesses, The Difference .......................................................................8Key Drivers On Boards & Board Members ...................................................................9The Community Governance Framework ...................................................................10Your Personal Governance Framework ......................................................................11Remuneration: For & Against ......................................................................................12Remuneration Model ...................................................................................................13Remuneration, The To Pay or Not to Pay Process ................................................14-15Remuneration, To Pay Or Not To Pay? .......................................................................16ASSPL Consultant’s Observations .........................................................................22-24The New World… The Rise of Some, The Demise of Others .....................................25My Next Actions ..........................................................................................................26Governing Like Admirals On “SS Community Business” ............................................27



Remuneration, To Pay or Not to Pay follows on from Brian Herd’s presentation.This presentation is designed to be interactive and practical, giving you and your board the information and tools to consider this emerging issue.

Disclosure: ASSPL has a governance system called The Australian Governance System, TAGS™. TAGS™ contains a remuneration policy, associated tools and a range of related policies and tools.

Introduction

“On the chase of a litigation case”



There are between 700,000 – 835,000 community businesses (Not for Profit) organisations operating in Australia, 12–15% of these remunerate their boards.

As these organisations can be broadly divided into some thirty-five different industries/sectors, it’s a given that many organisations operate in a variety of service types.

The thirty-five industries and sectors operate on a spectrum that spans corporate/commercial to community/welfare to social/hobby.

Job CentreA U S T R A L I A

G L A M O R G A N S P R I N G B A Y C O U N C I L

Aged & CommunityServices • Australia

desertchannelsG R O U P

The Big Picture Of Community Businesses (Not For Profits)



The Big Picture Of Community Businesses

Ethnic & Refugee Services

Community Services

Childcare Children’s Services

Correctional Services

Labourmarket/ Employment

Services Regional

Economic Services

Sporting &

Recreational Services

Private Health

Insurance Services

Mental Health

Services Medical Services

Residential Aged Care Services

Indigenous Services &

Culture

Community Co-operatives

Emergency Services

Adult Education Services

Peak Bodies & Industry

Associations

Animal Welfare Services

Welfare Services

Community Care

Services Museum Services

Training Services

Credit Union

Services

Health Care

Services

Charities & Trusts

Universities & Tertiary

Youth Services

Hobby Associations

& Clubs

Private School

Services

Palliative Care

Services Environmental

Services

Community Development

Services

Library Services

Arts &Culture

Disability Services

Social Clubs & Pubs

Industry Super Funds



The Big Picture Of Community BusinessesWhilst some community businesses were established pre World War I, significant growth of these organisations occurred post World War II, an era acknowledged as “the welfare paradigm”.

Since the mid-1990s the majority of community businesses, particularly those involved in human services have commercialised and corporatised with the rise of “the market paradigm”.

Today, community businesses rigorously compete against public, private and other community businesses and Local, State and Commonwealth Governments.

Individuals & Families

Community Businesses

Private Businesses

Local, State &

C’wealth Govts

Local & Regional

Commmunities

Public Businesses

Board State & National

Communities

International Communities

The Australian Society & Economy



The Big Picture Of Community BusinessesGovernment & Industry Standards & Quality System

Governance Frameworks/Systems

Local, S

tate &

C’w

ealth

Legisl

ation/R

egulat

ion

Constitutio

ns or M

emoran

dums & Artic

les of A

ssocia

tion

Public Businesses ...

Public CompaniesListed on Australian &

International Stock Exchanges ...

Community Businesses ...Incorporated

Associations, Cooperatives & Acts of ParliamentCompanies Limited

By Guarantee,Associations

Local, State &

Commonwealth Government...Departments,Authorities,Agencies

Private Businesses ...Individuals or

Private Groups ...Sole Traders, Partnerships,

Proprietary Limited, Trust Companies



The Big Picture Of Community Businesses

Religious Paradigm

Religious Paradigm Charitable

Paradigm

Charitable Paradigm

Welfare Paradigm

Welfare Paradigm Private

Businesses

Community Businesses (NFPs)

MarketplaceParadigm

MarketplaceParadigm

PublicBusinesses1800s 1900s 1960s 1970s 1980s 1990s 2005 2025/50s

Economic,Social &

Environmental Sustainability

Paradigm

Economic,Social &

Environmental Sustainability

Paradigm

In the “welfare state” or “welfare paradigm”, boards of directors were mainly viewed and operated as committees of management/management committees or similar. As founders, managers and governors of the organisation and as committee members they were typically “hands in the business rather than hands around the business”.

Today there is an increasing focus on governance and a falling away of the many Not for Profit methodologies and misunderstandings of previous eras, eg: where committees managed.



Community Businesses: The DifferenceCommunity businesses have an important place in local, regional, state and national communities, society and economies; they have either Not for Profit and/or Deductible Gift Recipient and/or Public Benevolent Institution registrations.

Community businesses primarily deliver a social or community dividend, whilst private businesses and public businesses primarily deliver a financial or economic dividend.

Research does not yet tell us who delivers better services, private, public or community businesses.

However, if you are passionate about community businesses and their roles and responsibilities in developing and delivering human services into the future, then how does a board ensure their organisation’s future success?



Govern

ance

Contracts & Funding Service Agreements

Marketplace & Competitor

Forces & Trends

Vision, Mission, Values &

Core Business

LegislativeRequirements &Determinations

of Courts

Client Needs &

Expectations

Standards & Quality System Requirements

Governance Expectations &

Requirements

Accountability, Transparency & Performance

Key Drivers On Boards &

Board Members

Legislation

Standards

Marketplace

Accountabi

lity

Vision

Clients

Fund

ing

Key Drivers On Boards & Board Members



Contemporary boards are governing their organisation, enabling management to manage the organisation. Broadly speaking, the community governance framework has three key components:

* firstly, a legislative framework, comprising Local, State and/or Commonwealth legislation, an organisation’s constitution or similar document and government or industry standards or quality systems, contracts or funding and service agreements.

* secondly your leadership framework which, whilst theoretical, provides the basis for the practical application of governance

* thirdly, a governance system that provides the necessary governance principles, policies, procedures, indicators, tools and resources that assist a board to undertake its governance work in a very practical way.

Loca

l, Stat

e &

Common

wealth

Legis

lation

Your

Organis

ation

’s

Constit

ution

Industry or Government

Standards

Your Personal

Leadership Framework

Governance System,Principles, Policies,

Prodecures, Indicators &

Tools

Contracts & Funding

Agreements

The Community Governance Framework



It’s worth recalling that as a board member you also operate within a personal framework:

* Your ethos/philosophy/values* Your governance roles and

responsibilities* Your governance rewards* Your governance risks

Your Personal Governance Framework

Your

Tra

inin

g/

Qua

lifica

tions

Your Skills/Knowledge

& Experience

Your Personality

Your Governance

Roles & Responsibilities

Your GovernanceRewards…

Heart?Head?

Pocket?

Your Governance

&Organisational

Risks

Your Ethos/

Philosophy/Values



Against* Inconsistent with our organisation’s

ethos, philosophy, vision, mission, values, constitution etc

* Our organisation is not in a financial position to remunerate directors

* Our constitution or funding and service agreements do not allow directors to be remunerated

* Compromises individuals’ personal contribution/social obligation or community commitment

* Adds additional costs to the board budget/organisation’s expenditure

* Would not be seen in positive light by our clients, members or stakeholders

For* Compensation for a director’s “Three

R’s”, refer page 11* Recompense my time, skills/experience

and knowledge, contributions, commitment, ideas and information

* Provides a strong basis against which board members can be assessed for their performance

* Can draw on the time of directors without feeling obligated, eg: weekend retreats, committee and taskforces

* Can underpin the move to a smaller, more professional board

* Enables the accountability and/or termination of a non-performing director

Remuneration: For & Against



Remuneration ModelGovernance

Remuneration Policy & Procedures and Related Tools

Sitting Fees, Board Meetings, Other Meetings, etc.

Professional Development; Conferences, Training, Tours, etc.

Reimbursements; Phone, Travel, Paper

Director Position

Description

Director/Board Self Assessment

or Performance

Appraisal

Directors’ Term of Appointment, Code of Conduct &

Confidentiality Agreement



Remuneration, The To Pay or Not to Pay Process

No NoNot Sure

Not SureYes Yes

Board’s PositionPersonal Position

Yes

No

Board undertakes

a remuneration discussion,

possibly using tools and/or

consults their members

Board reviews

remuneration papers/tools



Remuneration, The To Pay or Not to Pay Process

Archive Board Minutes & associated

documentation

Record in board

minutes & update

governance remuneration

documentation

If needed, inform

members

Remuneration mechanisms established

Remuneration included in

AGM/ Annual Report

Remuneration in

Finances/ Audit

Annual Remuneration

Review

Professional Development Undertaken

Professional Development

Plan

Board Member/

Board Self Assessment

Reconfirm OK, against

board budget &

organisation’s financial plan

Remuneration Schedule

& Criteria

Inform members

Record in board

minutes & update

governance remuneration documentation

Yes Vote

Record in board

minutes & update

governance remuneration documentation

No Vote



By looking at the perspectives that Brian Herd presented in his session and the aforementioned considerations individual board members and boards can consider the issue of “Remuneration: To Pay Or Not To Pay?The following sample of the Board Members’ Self Assessment Tool may be of some assistance in a board determining its position on this issue.

Remuneration, To Pay Or Not To Pay?

1717TAGS™: BOD Remuneration Checklist Status: Master Version: One Date: July 2008 Licence No: Better Boards Conference

Strictly Private and Commercially Confidential

TAGS™ Board of Directors’ Remuneration Checklist

[email protected]

TAGS™: BOD Remuneration Checklist Status: Master Version: Three Date: 3 August 2011 18

Board of Directors’ Remuneration Checklist

Item Remuneration Checklist Unknown Yes No Agreed Actions or Ideas Who Time Status

1.

Honest Discussion

Has the board had open and honest discussion about the remuneration of directors?

2.

Board Remuneration Policy

Has the board developed and agreed on a Board Remuneration Policy or similar governance policy/ies?

3.

Legal Entity Conflict

Will the remuneration of directors be consistent with the organisation’s legal entity/structure?

4.

Constitutional Conflict

Will the remuneration of directors be consistent with or in conflict with the organisation’s Constitution, Memorandum and Articles of Association, Charter or similar document?

19TAGS™: BOD Remuneration Checklist Status: Master Version: Three Date: 3 August 2011 19



5.

Vision Conflict

Will the remuneration of directors be consistent with the organisation’s vision?

6.

Mission Conflict

Will the remuneration of directors be consistent with the organisation’s mission?

7.

Values Conflict

Will the remuneration of directors be consistent with the organisation’s values?

8.

Philosophy/Ethos Conflict

Will the remuneration of directors be consistent with the organisation’s ethics, philosophy, ethos or aims?




9.

Board Annual Budget

Will the remuneration of directors form part of the Board’s Annual Budget?

10.

Board Annual Budget

Does the Board’s Annual Budget form part of the organisation’s three year Strategic Financial Management Plan?

11.

Reporting of Remuneration

Will the remuneration of directors be documented in the Annual Report and reported to the members at the AGM?

12.

Remuneration Criteria

Will the remuneration of directors need to be reported to ASIC, ATO or similar State or Commonwealth Government departments or authorities?




13.

Schedule of Remuneration

Has the board determined or documented on what basis/criteria the directors will be remunerated?

14.

Remuneration Determination

Has the board developed/obtained and documented a Directors’ Schedule of Remuneration or similar tool that will be part of the boards governance system?

15.

Affordability

Have directors discussed and agreed on how to structure the remuneration eg:

• per hour of sitting• per annum (an honorarium)• per board, committee or taskforce

meeting• a package based on time sitting,

conferences/workshops and reimbursements



Having worked with over 4,500 boards, chief executive officers and senior management teams from a wide variety of community business throughout Australia the following observations are put forward:

1. The majority of community business boards are transitioning from managing the organisation to governing the organisation.

2. The transition process tends to be spread over a one–two year timeframe, usually with the assistance of an external governance facilitator or consultant.

3. Typically boards discuss and agree on their governance model, governance structure, board skills mix, governance system (principles, policies, procedures, indicators, tools and resources) board budget, board annual program of work, chief executive officer delegation schedule and other related matters. Somewhere in that mix the board remuneration debate may occur.

4. Boards which do decide to remunerate directors develop a governance policy on board remuneration and/or customise and use a standard governance policy from TAGS™, The Australian Governance System and associated tools.

ASSPL Consultant’s Observations



ASSPL Consultant’s Observations cont’d:

5. The remuneration of directors tends to happen in medium to large community businesses, which have worked through several philosophical debates, eg: Are we a business, are we a service? What is our core business? Does our board behaviour match our agreed values?

6. Research articles indicate that somewhere between 12%–15% of Not For Profit directors are remunerated, most of whom are directors of Companies Limited by Guarantee.

7. All directors/boards which are either clients of ASSPL or known to ASSPL which are remunerated

* remunerate the chair, other officials and all directors.

* do not pay the chairperson additional remuneration.

8. Directors who are remunerated, have an agreed Schedule of Fees, Remuneration Criteria and/or similar tools, governance policies and accountability mechanisms.



9. Boards which are remunerated usually have a package consisting of sitting fees, tours, conferences and visits, professional development and the reimbursement of travel, telephone etc.

10. When boards do not have all the various governance components in place and operating, self interest can quickly lead to fraud, misappropriation and related illegal activities. The danger is a board culture of ‘self help’ develops.

11. With the increasing number of private and public businesses competing for tenders and contracts, State and Commonwealth governments are moving away from being prescriptive about directors not receiving remuneration eg: Commonwealth Department of Health and Ageing.

12. Seek legal and/or accounting advice, there are potential taxation implications.

13. Most importantly, a robust discussion and decision process should underpin a remuneration vote.

ASSPL Consultant’s Observations cont’d:



The New World… The Rise of Some, The Demise of Others

To Pay or Not to Pay

Community Businesses

Local, State &

Commonwealth Govts.

Private Businesses

Public Businesses

Commerc

ialisa

tion

& Com

petiti

on

Network

s

& Con

tacts

Partnerships

& Alliances

Privatisation

& Corporatisation

In a world of:* intense competition between private,

public and community businesses* consolidating industries and sectors* a wide range of key drivers in/on

boardsdirectors of boards will need to determine their position on the remuneration of directors.



My Next ActionsMy Next Actions Who Time

Status (To Do,

Underway, Done)



Govern

ance

;

Policy

Based

Dec

isions

Govern

ance

;

Strateg

ic Le

aders

hip

Governance;

Compliance

& Coverage

Visit

ors

Visitors

Compass;StrategicOptions

Governance;

Monitoring

& Reviewing

Finance & Administration

Sales &Marketing

Human Resource Management

Past,

Captain;CEO

OHS

Training

Products & Services

Tourists; Members &Customers

Opportunities Fly By

PeopleSafety

Net

Sunny Days

OpportunitiesFly By

Accountabilit

y

Money Stre

ams

Money Streams

D

emographics TechnologyLegislationCompetitionAccreditatio

n

Tendering

Present & Future TrainingPast Training

StrategicDirection

Competitors

Organisational Awards

Winds of Change

OrganisationalEntanglements

C

Investments

IndustrialRelations

InformationTechnology

"SS COMMUNITY BUSINESS"A Licensed Member of the

Australian Strategic Services Fleet

BusinessIntelligence

and/or

ValuesMission

Partnerships& Alliances

Core Busin

ess

Reserves, Resources, Revenue

Deep SeaOpportunities

LostOpportunities

Admirals;Board

GovernmentStandards

Vis ion

Michael GoldsworthyAUSTRALIAN STRATEGIC

SERVICES Pty LtdCopyright 2002

Stirrer

Strategic Plan

BizPlan™

RiskPlan™

TAGS™Codeof Conduct

Guarantee

Standards

Assessment

BusinessExcellence

Accreditation

Crew; Staff& Volunteers

Registrations

Certifications

Accreditations“Boards Govern, Managers Manage”

For further information contact:Michael Goldsworthy Principal Consultant Australian Strategic Services 03 5429 6331 0418 130 581 [email protected] www.asspl.com.au

Governing Like Admirals On “SS Community Business”

Remuneration, To Pay or Not to Pay? - Australian...

Documents

Transcript of Remuneration, To Pay or Not to Pay? - Australian...