The Nonprofit Board's Role in HR

I once served on the board of a group whose executive director adamantly insisted that managing staff was her responsibility, not the board's. We stayed hands off until we started to hear rumors of favoritism. After we prevailed in a battle with her about getting a listing of staff pay, we were shocked to discover that her assistant was paid $20,000 more than the program director and nearly as much as the development director. A lesson - actually several lessons - learned.

The role of the board of directors in personnel or human resource administration is frequently a sticky issue for nonprofits. Should the board approve all salaries, or just the executive director's? If a staff member has a grievance, should it come to the board? How can the board's finance committee members, for example, be helpful in hiring accounting staff, but not usurp the hiring role of the executive staff? How can a board member appropriately give feedback to the executive director on the behavior of a staff person?

Boards tend to be at one extreme or another: some insist on approving every raise for every staff member, while others never see a salary report. This article proposes specific guidelines for board oversight that don't take away from the chief executive's authority or responsibility. The board can approve various policies such as salary ranges while not interfering with the staff's ability to manage. However the board structures its oversight, it needs a formal process to exercise that oversight. These guides provide such a process, and follow the principle that the board as a whole governs the organization, while individual board members can be helpful advisors to staff.

Guidelines for the Board's Role in Human Resource Administration

1. Committee(s): The board establishes a board-staff committee that works with matters related to paid staff. Only board members have votes on the committee. This committee makes recommendations to the board for approval (rather than deciding matters on its own). Following are the areas for this committee's scope of examination.

2. Personnel policies and employee manual: The executive director is responsible for ensuring that personnel policies and procedures are disseminated and implemented, and that the policies are reviewed as appropriate by the board. Individual members of the human resources committee may be able to bring their human resources expertise to make suggestions. Every two years or so, the human resources committee (or a task force) reviews the policies with staff and, if appropriate, drafts changes or a complete revision.

3. Salary scales: The executive staff draft a rate schedule (salary ranges for each position or category) of salaries, which is reviewed by the human resources committee or task force. This ensures that the board has considered the strategic matters related to salaries: whether the schedule is in line with the organization's values, whether there is appropriate internal equity or differences among positions and departments, whether specific positions are appropriately placed on the scale, whether compensation is in line with that at similar organizations, and/or whether the compensation supports (rather than hinders) the organization's ability to recruit qualified staff.

The salary schedule is sent by the committee or task force to the whole board for approval. In this way, the executive staff are still responsible for salaries, but the range of salaries is one approved by the board.

4. Salary scale compliance: Once a year, the human resources committee or task force reviews the specific salaries of the staff (by name and position) against the salary schedule, to ensure that no individuals are being paid outside the range for that person's position. The committee's job is to protect against favoritism and ensure compliance with the salary schedule, NOT to review whether any specific individual deserves a particular salary.

5. Benefits: The benefits schedule -- health insurance, long-term disability insurance, 401(k), and so forth -- is reviewed annually as part of the budget process, with costs projected for the coming year. The human resources committee should review the benefits package at least every two years and suggest changes (additions or subtractions), and their financial implications, to the executive director, the board's finance committee, or both.

6. Hiring: In some cases, at the request of the executive director, one or two board members may help with hiring. A common example is the board treasurer helping to interview and select the chief financial officer (CFO) or accountant. It should be made clear to everyone involved that the final decision is made by the staff person to whom the new hire would report. In these situations individual board members are acting as advisors to staff.

7. Diversity: If an organization has established goals or principles regarding a staff that is diverse in race, ethnicity, gender, age, disability, or other characteristics such as client status, there will be an HR role to play in implementing the policies and goals. A board-staff diversity committee, or the board or board-staff HR committee, can assist with making sure that recruitment efforts reach out effectively (for example, through the ethnic press), be on the alert for indicators of weak management of a diverse workforce (such as a string of resignations from Latina nurses), and with monitoring progress towards goals.

8. Layoffs: A management decision to lay off staff usually reflects a financial situation that should already have been shared with the board. In this context, the steps that management is taking to deal with that financial situation -- whether layoffs, paycuts, new income strategies, or others -- should be discussed with the board and the board should bless or put a hold on management actions. Although in most staffed organizations the decision of who to lay off and when and how are management decisions, it's critical for the board and management to be in sync about how the organization is responding to financial problems.

9. Grievances: Grievances on the part of employees must first go through the written procedures outlined in the employee policies manual. If an individual has exhausted the grievance process and that process has been documented, individual employees may be permitted (if it is so written in the policies) to raise a grievance to either the board chair or the board's human resources committee, which then acts as the final arbiter. This may be especially appropriate where the complaining employee reports to the executive director and has an unresolved complaint about the executive director.

10. Serious charges about the organization's management: Sometimes a staff member has a serious charge against management, such as the illegal or improper use of funds, sexual harassment, discriminatory behavior, or improper accounting methods that cannot be taken up in the grievance process. To provide an outlet for such matters (other than a complaint to the state attorney general), some organizations allow staff members to raise such concerns with the board chair. When other board members hear such complaints, they have a responsibility to direct the staff person to the board chair. By making the board chair the sole recipient of such charges,the board can prevent a disgruntled staff member from trying to develop allies on the board against the executive staff, and can provide a way to bring an organizational matter to the attention of the board as a whole.

Delegating Personnel Work

The board can choose how to delegate personnel-related work. The most common choices are:

  • a standing (permanent) human resources committee,
  • a human resources task force (that is, a temporary committee),
  • a board-staff standing committee, or a
  • board-staff task force.

Committee members might include the staff human resources director (if there is one) or executive director, and/or non-board volunteers such as a human resources attorney. (Note that if non-board individuals are members of the committee, either they should be as non-voting advisory members of the committee, or the committee's recommendations should come back to the board for approval.) In some cases, the human resources committee is also responsible for developing plans and strategies for appropriate recruitment and utilization of volunteers, while in other organizations the human resources committee looks only at paid personnel.

Each organization will want to choose its own guidelines on these sensitive and important issues. Striking the right balance between board and ED authority may initially be challenging, but it's far from impossible. In the end, sorting this out will strengthen your organization while making life easier for board members and staff.

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Comments

My first thought in reading this is that this is a story about how boards should deal with non-performing and/or incompetent executive directors, and not a story about personnel. I am sure if you look deeper, the human resources problems were not the only problem and were just a sign of things not going well. I agree with most of the recommendations and its important to safeguard organizations against bad leadership in any position, but I think more interesting would be the lessons of how a board should review and assess ED performance - b/c I think this step is often missed as a board then "jumps in" to fix the "personnel" problem, when its really an ED problem.

Here, here!!

Assuming that the human resources budget is set and approved by the board and the ED is not requesting a budgetary revision in the establishment of a new position, what is the board's role in establishing the position and the details of the job description?

I'm not sure there's a right and wrong here other than what the ED and the board have agreed to. In some smaller organizations, the ED relies heavily on the board as an advisory group about staffing matters, although she'll make the final decisions about staffing. In other cases the board simply gets a report about what staffing changes might have been made. Over time, when a board gains confidence in their ED, they'll step back and give her more leeway. But if they get signals that their ED is slipping off the track, they'll step in closer and monitor decisions more closely.  My $0.02. Jan

Board's have a responsibility for ensuring the appropriate use of organizational assets. It is a Board's responsibility to establish a reasonable compensation policy and to make certain that policy is being followed. In general the involvement of Board members in hiring and salary negotiation is a mistake in my opinion. Keeping clarity between the governance and management functions is critical. That said, the Board should establish a policy that indicates the organization's values around comp; and reviewing salaries on an annual basis (for policy compliance) seems to be a reasonable activity for the finance committee--particularly since the issue is also one of risk management.

Thank you!! I couldn't have said it better myself.

My organization has less than 25 employees. We have a practice of submitting "Hiring Reports" to the Personnel Committee (or the Board if this would be the only item on a Personnel Committee agenda). Each report summarizes the advertising and selection processes, number of applicants, number interviewed, etc., as well as the person(s) selected and the wage grade and step.
This keeps the Personnel Committee/Board informed while appropriately assigning responsibilities to relevant staff.

Great comments above. I can also tell you that if the nonprofit has audited financial statements, the auditor is supposed to evaluate the control environment, part of which includes the board's oversight of the HR function.

Pursuant to the COSO internal control framework, the auditor's inquiries regarding the board's, or, perhaps, audit committee's oversight of the HR function, would include such areas as hiring and recruitment, orientation, training, evaluating, counseling, promoting, compensation, and taking appropriate disciplinary and remedial actions. In the accounting world, COSO stands for the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which is a U.S. private-sector initiative, formed in 1985. COSO specifies that "while the human resources function should have adequate published policies in these areas, their actual practice areas send strong messages to employees regarding their expected levels of ethical behavior and competence. The higher-level employee who openly abuses a human resources policy, such as a violation of plant floor dress codes, quickly sends a message to other levels in the enterprise. The message grows even louder when a lower-level employee is disciplined for the same unauthorized violation while everyone looks the other way at the higher-level violator."

As we see time and again in the current news, problems tend to exist or get worse in those organizations that do not have an active, informed, diligent, professional and sufficiently independent board that is involved in oversight. Not day-to-day management, but oversight of management and the organization. Such oversight should not be taken as an insult to management--oversight is the affirmative duty of each board member.

Regards,
Dave Tate
http://davidtate.us (click for nonprofit audit committee papers)
tateatty@yahoo.com (San Francisco)

A board needs to have good oversight of and engagement in the agency, and all actions should have a good level of transparency, preventing situations like the one posed by the original post. If the board and executive director work in partnership, these issues should never come up, but boards do sometimes, particularly in smaller agencies, involve themselves beyond their role, creating problems and straining relationships. Boards should provide oversight and broad policies. Those policies are to be interpreted and implemented by the ED with discretion and decision-making authority. Boards, however talented and well intentioned, are simply not in a position to make effective decisions about the day-to-day management decisions of an agency, including performance reviews, exact salaries per positions, etc. It's particularly disturbing when boards do this in "executive session," excluding the ED from the conversation at all. They can justify this action all they want, but it's bad business for the agency all the way round. Uninformed decisions will be made and resentments created. An ED cannot lead under such circumstances.
When a board oversteps its role, it interferes with the leadership of the ED, who is typically an ex-oficio member of the board anyway, creating an atmosphere that is stifling, demoralizing and laden with feelings of mistrust and disrespect--no matter what they intended. I fear that, in this economy, board members who are experiencing personal and professional stresses will react in panic and try to jump into decisions at nonprofits where they have no business, creating a crisis where there did not have to be one.

I've seen boards more likely to interfere at this level when dealing with less-typical compensation issues such as bonuses or benefits packages. The outline provided in this article is right. The board sets the policy/guidelines in the agency manual, in conversation and partnership with the ED whose input cannot be denied, and the ED interprets and applies. The board should have nothing to do with management of the staff other than the type of monitoring outlined above. Anything else is a mish-mash of rules guaranteed to strain relationships and cause problems.

I like the emphasis on not merely recognizing an oversight role but having a process outlined by which that role will be conducted. It is imperative for the good of the organization that even in the area of personnel matters the board knows what is going on. It is not helpful to find out that you have a rampant EEO problem only when the organization is being hauled into court. While giving the ED space to manage the day to day operations, the board must make certain that it has a framework that will sound the alarm for systemic problems in pay equity, discrimination, and fairness issues before they explode.

In a small organization what is the board role when the ED wants support around disciplining and probably firing a long-time difficult employee. Should the board be involved at all? This is a very tiny organization (less than 10 employees) If there's no personnel committee, is it appropriate for this to be between the ED and the Board president? Should the whole board be involved?

A board-staff diversity committee, or the board or board-staff HR committee, can assist with making sure that recruitment efforts reach out effectively (for example, through the ethnic press), be on the alert for indicators of weak management of a diverse workforce (such as a string of resignations from Latina nurses), and with monitoring progress towards goals. Thanks for the article.
Hakan Selvi

My first thought on reading this is that this is a story about how councils should deal with non-performing and / or incompetence of the executive, not a story about the staff. I am sure if you look deeper, the problems of human resources are not the only problem and only a sign of things go wrong. I agree with most of the recommendations and their importance for organizations to safeguard against ill in any leadership position, but I think it would be more interesting experience of how a board should review and evaluate performance ED - b / c I think This step is often missed as a board then "jumps" to fix the "personal" problem, when really a problem ED.

As board chair it has been brought to my attention of several incidents of insubordination by an employee to a new Executive Director. Of course the new ED wants the support of the board in dealing with this situation. Comments?

Does anyone have experience with a board of directors meeting outside of regular meetings suddenly "strongly suggesting" the hiring of an unemployed board member to the position of "interim" CFO. This would be a new position for the organizatioon. The board member, who may be qualified for said position, had been lobying for the need to create and fill this position for the past year while at the same time looking for other job opportunities. This board member intends to resign from the board for whatever period he serves as staff with no assurance that he will not return to the board upon termination. In all liklihood "interim" will probably equate to, untill and unless something better comes along. Board member has suggested that the salary consideration is lower than what he requires but recognizes that the ED salary is lower than what he requires as well.

Does it pass the smell test? If it seems fishy to you, then you can be assured that it will seem equally so to others involved with your organization. It seems this one does NOT pass that test!

I have read many board books and can't seem to find the answer to my questions...

Through our evaluations of the ED we have learned about unhealthy managment-type practices (favoring employees, not speaking to others, etc.). Our ED also discourages communication between board and staff.

I am a new president and I want to make sure we do not overstep our role and at the same time make sure we have a safe/productive work environment.

Also, our employees submit time cards, vacation forms, etc., to the ED, should we as a board also be requiring and reviewing the EDs time and vacation requests? Again, we don't want to overstep or micromanage, but how else would we monitor...

Any help would be appreciated.

Rather than try to find a generic rule, realize this: you have evidence that there are some problems with the ED. In any situation where problems are seen, you will need to step in closer. What might be "micromanagement" in a high-performing ED is actually prudent oversight in a situation where problems seem to be present.

Write a message to the ED saying that because of concerns, for a period the board will be looking closer. But the things you mention -- time cards and vacation forms -- will not be revealing about "unhealthy management-type practices." Try to find ways of looking closer that speak more directly to your issues and concerns.

Remember that defensive EDs turn to "micromangement" as a counter-attack. It's more important for the board to ensure that organization has a strong ED than to avoid being criticized by the ED. Good luck. Jan

Our non-profit board just formed a separate for-profit entity under its umbrella. Can the boards be identical in membership? Can we assign ourselves compensation as members of the for-profit subsidiary? Use it a subsidiary? Can we vote as n-p bd members to sell shares in the f-pcorp and the, as members if the f-p board, purchase those shares?

 This one is way, way too complex to even try to answer here in a Blue Avocado comment area.  Hope you are getting SOLID advice from someone who knows all the details of your situation.

I don't think an HR committee is needed for much of this. It would be easier to submit payscales for positions (and benefits as you suggest) to the board as part of the budget process. Varification of pay scale compliance is an easy and more approrpriate task for the auditors (given they are instructed to do so) and much better than having board volunteers know what staff are getting paid (which should be confidential and not shared with volunteers regardless of their positions).

And don't forget the need for annual ED performance appraisal which should use a (written board approved) 360 degree feedback system. Concerns about favoritism or non compliance with policy should arise this way and would prevent the need for an end run by staff about the EDs behavior.

Good process prevents problems. Bad process ensure they recur.

Upon reviewing the Employee Policy Manual, the personnel committee asks the HR person for information. The requested information was given, but there seems to be a situation that is not quite right with benefits. A committee member is asked to get the figures from the Payroll company to verify that the facts received from the HR person are correct. Does the Board have oversight to request information from the payroll company, if in fact they see a problem and have been given clearance from the Board President?

I am new to a non-profit board and need clarification on policy formation. Who actually writes HR and Medical Policy, the Board or ED? Thank you for your assistance.

Typically, staff writes a draft for board review, revision and approval. Jan

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