OG515-5 Payment for serving as trustee

Last reviewed:
12 November 2014
Last updated:
29 December 2014

Policy Statement/Overview

The Commission’s overall policy on payments to charity trustees, including payment for serving as trustee, is set out in Trustee Expenses and Payments (CC11). Staff need to have read that guidance for a full understanding of how we describe our policy on trustee payments. Section F of CC11 deals specifically with payments for serving as trustee and governs our overall approach to these cases.

Where we are asked to consider requests to authorise payments for serving as trustee we must consider each case on its merits, in the context of our statutory objectives.

Our policy is that we will only agree to the proposal where we are satisfied that:

The proposal is clearly expedient in the interests of the charity, ie making the payment(s) will provide a clear and significant advantage to the charity over all other reasonable options.

We expect that we would only authorise a payment of this kind where exceptional circumstances mean that the charity will not be as effective without making the payment.

Summary of the guidance

This guidance refers to payments made to a trustee for serving as trustee and sets out the circumstances where these payments can be made.

This guidance is intended to help caseworkers:

  • to handle initial queries regarding payment for serving as trustee: Broadly, when deciding whether or not to pay a trustee, the other trustees should ensure that they make the decision in the best interests of the charity having:
    • considered all relevant factors (and ignored irrelevant factors);
    • taken appropriate advice;
    • acted in good faith; and
    • properly managed the conflicts of interests.

And

  • to make decisions when we are asked to authorise these payments: When doing this, we must ensure that our decision is:
    • reasonable, based on the evidence presented;
    • taken in furtherance of our statutory functions; and
    • taken in compliance with our public law duties.

The guidance should be used where a charity is considering paying a trustee for serving as trustee and has contacted us before any payments have been made. Where payment has already started this will be unauthorised trustee benefit. 

This guidance should be used only where the total of all payments to all trustees in a charity’s financial year will amount to £1,000 or more. (Where total payments will amount to less than £1,000 in the charity’s financial year see section F8 of CC11 and OG515-7 Small payments to charity trustees.)

This guidance is not intended to cover instances where:

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Casework Guidance

B1 Definition and key points

B1.1 Definition of ‘payment for serving as trustee’

By ‘payment for serving as trustee’ we mean any payment or other benefit (use of the charity's property or payment in kind, for example) given by a charity to one of its trustees in return for serving as trustee and for carrying out the day to day activities of a trustee.

The day to day activities of a trustee might include:

  •  preparing for and attending trustee meetings
  • considering the charity’s draft accounts and annual reports and approving these, prior to formal sign-off in accordance with the charity’s governing document
  • obtaining and acting on the advice of the charity’s professional advisers where this is necessary for the performance of the functions of the charity
  • setting the strategic direction of the charity and ensuring its governing document is fit for purpose
  • managing senior staff, if appropriate
  • ensuring the charity complies with its legal obligations, including filing documents with the Commission and, where required, other regulators
  • attending training courses or orientation sessions necessary for the fulfilment of the trustee’s duties
  • any other activities relating to the general control and management of the administration of the charity.

B1.2 Key points keypoints

 

 

  • The principle of voluntary trusteeship is one of the major factors in maintaining the public’s trust and confidence in charities. Moving away from voluntary trusteeship is a significant step and not one to be taken lightly.
  • A charity can pay one or more of its trustees for serving as trustee if it has a clear authority to do so. This authority may be found in the charity’s governing document, or it can be granted by the court or the Commission.
  • When considering a proposal to pay a trustee, a charity must properly assess the potential risks the charity will face.
  • A charity should only decide to pay a trustee for serving as trustee where this is clearly in the best interests of the charity.
  • In making a case to us for authority to pay a trustee, we expect the trustees to use the online application form. This sets out the information we need to be able to consider authorising the payment.
  • Where a charity makes a payment to a trustee, there will be a conflict of interest. The trustees must be able to demonstrate that they have in place clearly defined and robust procedures for dealing with this conflict. This would usually be set out in a written conflicts of interest policy.
  • Where there is a sole trustee, whether this is an individual or a corporate body, it is particularly difficult to justify payment for serving as trustee and to manage the conflicts of interest caused by this. This is because there is no-one else to decide that making the payment is in the best interests of the charity. 
  • When setting the rate to be paid, a charity must be able to demonstrate that the rate is no more than is reasonable for the work carried out for the charity.
  • When drawing up an agreement to pay a trustee, including terms of service, a charity should ensure that tax, pension and benefit issues have been taken into account.
  • Where we are asked to authorise a payment, we will refer the trustees to our web guidance and the online application form. This sets out the information we need to see in order to decide whether or not to authorise the payments. Where the case made is not convincing, or where the charity has not satisfactorily dealt with all of the criteria, we may decide to give authority on condition that certain points are dealt with, we may decide to refuse to give authority or we may authorise a payment made on lesser terms than requested.
  • Where we give authority to the payment of a named trustee, this may be time limited to run for no more than one or two years. Any extension to this period would then need additional authority.
  • Where we give authority for a particular post on a trustee board to be a paid post, we would not usually time limit this authority. This would be subject to the charity being able to demonstrate that there are in place robust and effective review mechanisms.
  • Where we authorise the payment of a trustee we may decide to make this authority conditional. For example, we may include a requirement that the level of payments must not exceed a set amount or we may set a maximum number of trustees who can receive benefit under the authority.

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B2 Considering an application

B2.1 Initial Checks

When we receive a completed application form there are a number of checks we must carry out before considering the case made:

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Is the charity up to date with its filing obligations? This is important not only because it is our policy not to provide authority to non-compliant charities, but also because we must have up to date financial information, including details of any other trustee benefit, when deciding whether or not to authorise the payment. If the charity's income means that the trustees are required to submit accounts annually, the form asks the applicant to check the register to see if we have already received the latest accounts. If not, the applicant should upload the accounts along with the form. Where the charity falls below the income threshold for accounts submission the form asks the applicant to upload the latest accounts to help us consider the case. If an application is submitted without our having access to the charity's latest accounts we will return the application as incomplete and suggest that the applicant reapplies for authority, using the online form, once the accounts are available.  

look_elsewhere Are the payments to be made in return for serving as trustee or are they for the provision of other services? If they are payments for the provision of services, over and above normal trustee duties, these can usually be made under the statutory power given by s185 of the Charities Act, without our authority (see OG515-2).

  • Is there a power in the charity’s governing document to pay a trustee for serving as trustee? If there is a power, the trustees can make the payments without our specific authority, unless there are conditions in the GD which require the consent of the Commission. The trustees must comply with any other conditions set out in the governing document and must be able to effectively manage the conflict of interest. We should advise the trustees that they should only rely on this power to pay a trustee where there is a clear and significant advantage to the charity to do so.
  • Have we previously given consent to make payments on the same, or similar, terms? If so, does this earlier consent still apply? We should check the charity’s files to see if there is an existing consent which may mean that we do not need to give authority to the current proposal. 
  • Will the proposed payments mean that the total of all payments to all trustees in the financial year will be £1,000 or more? If not, we would expect the charity to rely on our small payments policy to make the payments without seeking authority. (See OG515-7.) The online form enables the applicant to save and print a certificate stating that our authority is not required in this case. 

Having considered these points, if it is apparent that the proposed payment does require the Commission’s consent or authority (and the charity is up to date with its filing obligations) we should consider the case made in support of the application.

B2.2 When might we approve a proposal to pay?

approveWe must carefully consider the case made based on the criteria set out in E7. In all but exceptional circumstances we expect trustees to apply for authority using the online form, this includes fields for each of these criteria. If the trustees have not dealt with each of the criteria we will return the application as incomplete. Once we have the relevant information we must fully consider the case and only grant authority where:

  • The charity is up to date with its filing obligations to the Commission. This is not only because it is our policy not to deal with non-compliant charities, it is also important for us to have up to date financial information to help to inform our decision.    
  • The proposed level of payment does not make up a large proportion of the charity’s financial resources to the extent that making the payment might be likely to have a significant negative effect on the charity’s ability to carry out its objectives.
  • It is clear from the case made that the trustees have considered all reasonable options and having done so, are agreed that paying the trustee is in the best interests of the charity.
  • The trustees have made a convincing case that there will be a clear and significant advantage to the charity in making the proposed payment.
  • The trustees' proposals to manage any risks appear robust and adequate.
  • The roles and responsibilities of the trustee to be paid appear to be particularly complex or onerous, requiring the trustee to give a greater commitment of time and/or effort than might normally be expected of a trustee.
  • The trustees have tried to recruit unpaid trustees with the necessary skills and life experience. (Or, where they have not tried to recruit unpaid replacement trustees, the reasons why not are robust, realistic and convincing.)
  • The trustees have confirmed that the decision to make the payment was agreed at a properly convened quorate meeting, excluding any trustees who may have a conflict of interest. (For example, trustees connected to the trustee to be paid.)
  • The trustees have confirmed that the trustee who is to be paid has only been involved in any discussions regarding the proposal where the other trustees need information from the trustee and that the trustee has not influenced the decision, either directly or indirectly.
  • The trustees, excluding any conflicted trustees, will be able to form a quorum to deal with performance reviews, etc.
  • The trustees’ proposals for dealing with the conflict of interest appear effective and robust.
  • The trustees have demonstrated that the proposed payment is set at a level that is reasonable for the work to be carried out (this should include a benchmarking exercise).
  • The trustees’ proposals for reviewing pay and performance appear robust and practical.

If we are not clear about any of these points we should ask the charity for further information and might ask for supporting documentation, if necessary. Alternatively, we may decide to give a conditional authority which can only be relied on when specific conditions are met. For example, the authority may require the establishment of an independent remuneration committee to look at pay and performance. Only when we are entirely satisfied with the case made, and, where we attach conditions, that these are sufficiently robust, should we agree to authorise or consent to the proposal.

Where we are not satisfied with the case made we should refuse to give our consent or authority. This should be recorded as a formal decision of the Commission and the charity should be signposted to the decision review process. See B4 When might we refuse to give authority to pay a trustee for serving as trustee?

The Decision Flowchart within this guidance is designed to help caseworkers to consider an application for authority. The Decision Checklist will help to ensure that all the relevant points have been covered.

reviewableAgreeing to authorise a proposal to pay a trustee is a reviewable decision, case workers must clearly record their reasons for doing so on the case file.

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B3 Authorising a payment for serving as trustee

How we give authority depends on the contents of the charity’s governing document and the particular circumstances of the case. Our general policy is set out below: caseworkers may decide not to follow this if the circumstances of the case suggest it is appropriate to do so.         

B3.1 Where there is a conditional power in the charity’s governing document

If the charity’s governing document has a conditional power to make these payments, ie a power which is subject to our consent, we can give this consent in accordance with the terms of that clause. This will usually be in writing, by email or letter. Our written consent should set out the specific circumstances of the case, stating that this is the consent of the Commission to the proposal to pay a trustee for serving as trustee, as required by clause # of the governing document. The trustees must follow any other conditions set out in the payment clause.

B3.2 Where there is no power and no prohibition in the governing document 

Where there is no power in the governing document, there are two options for how we authorise the payments.

  1. By Order: this is usually appropriate where specific payments are to be made to named trustees. This applies however the charity is constituted.
  2. By authorising the amendment of the governing document to include a conditional power to pay. This is more appropriate if the trustees want the option to pay other trustees in the future. In this case, we will authorise the trustees to adopt the model conditional power. We will do this by Order, if the charity is unincorporated, or by providing consent under s198 or s226, if the charity is a company or CIO.

B3.3 Where there is an express prohibition in the governing document

Where there is an express prohibition against trustee benefit in the governing document, this will need to be removed before any payments can be made. We will authorise the removal and remuneration by Scheme, where the charity is unincorporated, or by s198 or s226 consent, where the charity is a company or CIO.     

B3.4 Attaching conditions to our authority

Where we give authority to the payment of a named trustee, this may be time limited to run for no more than one or two years. Any extension to this period would need additional authority. An application for a continuation of the arrangement would need to demonstrate how paying the trustee has improved the performance of the charity and how this improvement will continue in the future.

Where we give authority for a particular post on a trustee board to be a paid post, we would not usually time limit this authority. This would be subject to the charity being able to demonstrate that there are in place robust and effective review mechanisms.

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B4 When might we refuse to give authority to pay a trustee for serving as trustee?

The payment of a charity trustee for serving as trustee challenges the principle of voluntary trusteeship and is not something that should be undertaken lightly. Where we are asked to authorise such a payment we must take great care in scrutinising the case made in support of the application and carefully consider any other relevant information. If we have any doubts about the proposal to pay a trustee, we should ask the charity for further information. Having discussed any issues with the charity, and taken legal and accountancy advice as required, if we are still not convinced by the case we can refuse to grant authority. This is a reviewable decision; case workers must clearly record their reasons for making the decision on the case file.

B4.1 What factors might cause us to refuse to grant authority?

refuseThe list below sets out a number of points that would usually mean we would refuse to authorise a trustee payment or only grant authority with conditions attached. This list is not exhaustive and other reasons may arise depending on the circumstances of each case.

We will usually refuse to authorise a payment where:

  • the charity is in default with its filing obligations and cannot provide up to date accounts. This is in line with our policy to not provide services to non-compliant charities and is also important because we cannot determine the impact of a proposed payment on a charity's work without up to date financial information
  • the proposed level of payment will take up a significant proportion of the charity’s financial resources and making the payment looks likely to have a significant negative effect on the charity’s ability to carry out its objectives
  • it is not clear from the case made that the trustees have considered all other reasonable options, and, having done so, are agreed that paying the trustee is in the best interests of the charity
  • the trustees have not made a convincing case that there will be clear and significant advantages to the charity to make the proposed payment
  • we consider that there are risks attached to the proposal and the trustees have not recognised these risks or, where they have, the processes which are proposed to manage these risks appear inadequate. Our Risk Framework may help to recognise these risks
  • the roles and responsibilities of the trustee to be paid do not appear to be particularly complex or onerous and appear to require no more commitment of time and effort than might usually be expected of a trustee
  • there has been no attempt to recruit trustees with the necessary skills and life experience who are willing and able to carry out the role without payment and the reasons for deciding not to do this are not convincing
  • the decision to make the payment was not properly agreed at a quorate meeting, where only unconflicted trustees took part in discussions
  • it appears that the trustee who is to be paid may have influenced the decision regarding the proposal
  • there are other conflicted trustees to the extent that it is not clear how the trustees will be able to form an unconflicted quorum to deal with performance reviews, etc
  • the proposals for dealing with the conflicts of interest do not appear to be sufficiently robust or effective
  • the charity cannot demonstrate (providing evidence of benchmarking as appropriate) that the proposed payment is set at a level which is reasonable for the role to be carried out.
  • there is no process in place for reviewing pay and performance or, where the charity has suggested a process, this appears to be inadequate
  • the charity cannot provide adequate evidence to support any aspect of the case, or, where evidence is unavailable, the reasons for this are not convincing.

When considering refusing to authorise a proposal to pay a trustee we must consider how this may impact on an individual’s human rights (see B4.2).

reviewableWhere we refuse to give authority this should be recorded as a formal decision of the Commission. This decision can be appealed to the Charity Tribunal. Caseworkers must take care to ensure that the decision is taken fairly within the context of the decision making checklist and that the reasons for refusal are clearly recorded. The reasons for refusal may be set out in the letter to the charity or recorded as a case note, as appropriate. We should place a copy of the letter and/or case note on the charity's key documents file, to ensure this can be referenced in the future.

Further information on the review process can be found in OG736-1.

When informing the charity of our decision we should refer to our decision review process should the trustees decide to appeal against this (see Model refusal letter).

B4.2 How the Commission's public law duties might impact on our decision making

Where we are making a decision regarding trustee payment we need to consider our public law duties including whether our decision might impact on the human rights of any individual (or corporate body). Further information on human rights can be found in OG71 Human Rights Act 1998.

When we formally record the reasons for making our decision, we should confirm that we have considered the case in the context of equalities legislation and our other public law duties.

lawyer_referCaseworkers may consider it necessary to take legal advice about any public law duty impact where we are proposing to refuse to authorise a payment to a trustee.

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B5 What do we do where a charity has a sole trustee?

Where a charity has a single or sole trustee (which could be an individual or a corporate body, such as a local authority or a bank) there are additional considerations to bear in mind:

  • it might be difficult to manage payments in the light of the conflict of interest. (There may be provisions within the Governing Document to deal with the conflict, but even where this is the case we may need to assess whether or not these are adequate to deal with the conflict.)
  • because of this, it will be difficult to make a convincing case that there are clear and significant advantages in paying a sole trustee which will outweigh any disadvantages.
  • where we are asked to authorise the payment of a sole trustee we should;
    • advise the charity of the difficulties this may cause in managing conflicts, and
    • suggest that the first step should be to try to identify individuals who are prepared to act as trustees without payment, either replacing the sole trustee or in addition to the sole trustee. Appointing additional trustees may bring the added benefit that sharing the workload might reduce the need for payment.
  • if it is not practical or possible for the charity to recruit individuals who are prepared to act without charging, and the trustees ask to continue with the application, we should explain that we will only consider authorising the proposal if the payments reflect the level of service provided to the charity.

Where a sole trustee applies for payment, the applicant cannot use the online form as this includes criteria involving 'other trustees' etc. In this case, the application must be made in writing outside of the form. The information in support of the application will need to deal with the criteria set out in E7, with particular emphasis on:

 

  • how the rate of pay will be decided (see B7.1); and

 

  • how any conflict of interest will be handled (see E8).

 

lawyer_referWhere we receive a request for payment of a sole trustee we should discuss this with a Commission lawyer.

 

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B6 Whole or majority board remuneration

look_elsewhereThere are additional concerns and issues where the intention is to make payments to trustees which will mean that half, or more than half, of the trustee body will be paid. See OG515-8 for further information on handling whole board payment cases. 

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B7 Setting rates of pay, managing performance, tax liabilities and state benefits

B7.1 Setting rates of pay.

Where a charity decides to pay a trustee, the rate of pay must be set at a level that is reasonable for the service provided. Where a payment appears excessive this could result in the charity being seen as a vehicle for private benefit rather than it being an organisation administered for the public benefit.

In setting the rate of pay:

  • the trustees may decide to set this themselves; or
  • the trustees may feel it would be better for transparency and accountability if the rate of pay is established outside of the trustee meeting, either by a committee of the charity’s staff or by an outside body with the skills and experience to do so.

In either case, one of the most effective ways of setting the correct level of pay, and demonstrating that the rate has been set at the correct level, is by benchmarking the role against similar roles in similar fields. While charities might look to benchmark the role against similar roles in the private or public sector, the most appropriate benchmark would usually be against a similar role within the charitable sector.

A charity may think it is appropriate to consult with key stakeholders (such as funders or beneficiaries) on the proposal to pay a trustee, outlining the proposed level of pay. By doing this the charity can consider any comments from stakeholders when making the decision to pay and when setting the level of pay.

B7.2 Managing performance.

Once a reasonable rate of pay has been established the charity should draw up an agreement with the trustee. This agreement should set out;

  • what is expected of the trustee in the paid role;
  • the rate of pay and how this will be paid;
  • the process for reviewing performance and pay, including the process for managing poor performance; and
  • when and how the arrangement will come to an end.

The performance review process should be set out in writing and must be agreed with the trustee. The process would usually include a timetable for reviewing performance, setting out how performance is measured, to ensure that the charity is receiving value for money.

B7.3 Employment rights, tax & benefits.

When making the decision to pay a trustee, the other trustees should take professional advice to ensure that they understand the implications for the charity regarding employment law, income tax and pension liabilities. The trustees should also consider if paying a trustee might affect the charity's own tax position, regarding VAT for example. If making a payment will mean a change to the charity's tax position, the trustees must include any additional cost this might bring when calculating the total cost of making the payments.

Where the trustee to be paid is in receipt of state benefit or tax credits that trustee should contact the relevant authorities in advance, to check what effect the proposed payments may have on these benefits.

look_elsewhereThe website for HMRC carries information regarding tax matters, while further information regarding benefits can be found on the gov.uk website. 

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B8 What if a charity makes a payment to a trustee without authority?

Where a charity makes payments to a trustee without the necessary prior authority, or where payments go beyond the terms of any authority, these payments will be unauthorised remuneration. 

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C1 Decision Flowchart

This Decision Flowchart is intended to help caseworkers decide whether or not to authorise a proposal to pay a trustee for serving as trustee. Part of this process requires caseworkers to consider the points set out in the Decision Checklist.  

 

Decision flowchart 

 

 

 

 

 

 

 

 

 

 

 

C2 Decision Checklist

Below is the decision checklist. This is intended to help caseworkers ensure that all relevant points have been covered when making a decision regarding payment for serving as trustee.

 

 

Yes

 

No

 

Is the charity up to date with its filing obligations to the Commission (annual returns and accounts)?  

 

 

 

 

 

 

 

 

 

If ‘No’ inform the charity that we will not deal with the request until the charity is up to date with its filing responsibilities.

 

 

 

 

 

 

Have the trustees confirmed that the charity can afford to make the payment without this having a significant negative effect on the charity’s ability to carry out its objectives?

 

 

 

 

 

 

 

 

 

Is it clear from the case made that the trustees have considered all reasonable options and having done so, are agreed that paying the trustee is in the best interests of the charity?

 

 

 

 

 

 

 

 

 

Have the trustees made a convincing case that there will be clear and significant advantages to the charity to make the proposed payment?

 

 

 

 

 

 

 

 

 

Do the trustees' processes for managing the risks attached to the proposal appear robust & adequate?

 

 

 

 

 

 

 

 

 

 

Do the roles and responsibilities of the trustee to be paid appear to be particularly complex or onerous, requiring the trustee to give a greater commitment of time and effort than might normally be expected of a trustee?

 

 

 

 

 

 

 

 

 

Have the trustees tried to recruit unpaid trustees with the necessary skills and life experience? If not, are the reasons why not robust, realistic and convincing?

 

 

 

 

 

 

 

 

 

Have the trustees confirmed that the decision to make the payment was agreed at a properly convened quorate meeting, excluding any trustees who may have a conflict of interest?

 

 

 

 

 

 

 

 

 

Has the charity confirmed that the trustee who is to be paid has only been involved in any discussions regarding the proposal where the other trustees need information and that the trustee has not influenced the decision?

 

 

 

 

 

 

 

 

 

Will the trustees, excluding any conflicted trustees, be able to form a quorum to deal with performance reviews, etc?

 

 

 

 

 

 

 

 

 

Do the trustees’ proposals for dealing with the conflict of interest appear effective and robust?

 

 

 

 

 

 

 

 

 

Have the trustees demonstrated that the proposed payment is set at a level that is reasonable for the work to be carried out?

 

 

 

 

 

 

 

 

 

Do the trustees’ proposals for reviewing pay and performance appear robust and practical?

 

 

 

 

 

 

 

 

 

Have the trustees provided evidence to support any aspect of the case, when requested to? (If evidence is not available, are the reasons why not convincing?)

 

 

 

 

  515-5 decision checklist part 2

 

 

 

 

 

 

 

 

 

 

   

Case Studies

D1 Where we authorised a proposal to pay a trustee for serving as trustee 

The charity

Income - circa £8 million pa.

Object - The charity's object is the relief of need arising from age, poverty or disability. 

Activities - The charity promotes good practice for users and providers of social care by producing and distributing best practice guidance.

Number of trustees – 14.

The initial approach

The trustees contacted the Commission asking for authority to establish a paid trustee post for a young person, who is, or had been, a social care user. They had tried to recruit a young person as trustee without payment but had been unsuccessful. The trustees were agreed that being able to offer payment to a suitable young person would be appropriate and would help to overcome the recruitment difficulties. The proposed level of payment was £5,000pa. The charity already had in place a remuneration committee, a performance review procedure and a conflict of interest policy. The charity also had a power in its Governing Document to pay a trustee for serving as trustee, subject to the prior consent of the Commission.

Our response

We replied to the trustees, signposting to our web guidance and CC11, and asking the trustees to complete the online application form, to ensure that we had all the information necessary to consider the case. 

The case in support of the application

The trustees submitted a completed online application form including the following information:

  • they were unable to name the person to be paid at present, as the application was for authority to go ahead and recruit a paid trustee. The name would be provided once the recruitment exercise was complete
  • the amount  of payment would be approximately £5,000pa for an initial period of two years
  • the proposed payment is a very small proportion of the charity's income and would, therefore, not affect the charity's ability to carry out its objects
  • the trustees had previously carried out a recruitment exercise and had recruited a young person who had previously been in care. However, this trustee did not attend any trustee meetings and resigned shortly after appointment. The trustees had recently approached an organisation, who worked with potential candidates, to instigate a competitive recruitment exercise. Open advertising was not deemed suitable due to the particular characteristics that the charity needed from the trustee
  • the trustee post required that the person took equal responsibility for the decisions made by the trustee body, this could not be achieved if the person was simply an advisor to the trustees  
  • having a young person with direct and recent experience of social care would mean that the charity could be more responsive to the needs of beneficiaries and this would bring clear and significant advantages to the charity
  • the level of payment had been set by the remuneration committee by comparing the duties and responsibilities of the trustee against a role with similar duties and responsibilities in the public sector
  • the trustee's duties would encompass the normal duties of trustee, attending and voting at trustee meetings, meeting and dealing with beneficiaries, etc
  • the charity had considered the risks associated with the proposal and had agreed that any risks could be managed by clear and transparent record keeping and by communicating the reasons behind making the payments to supporters, using the charity's newsletter.
  • the trustees had in place a performance review process which was currently used for paid staff, this would be adapted to encompass the necessary performance review for the trustee
  • the trustees would use the charity's published conflict of interest policy. This would ensure that the trustee would be fully effective and jointly responsible for decisions taken in all matters, save those surrounding his or her performance and pay
  • the trustees had consulted the charity's major corporate funder and the proposal had been supported.

By signing and submitting the form, the trustees confirmed that they were satisfied that the proposal fulfilled the other conditions set out in the declaration and that the charity had filed its latest accounts with us.

Our decision

We wrote to the charity, confirming that we were satisfied with the case made and stating that, once a suitable candidate had been recruited, we would give consent to the proposal as required by the charity’s governing document.

The specific reasons for our agreeing to the proposal were:

  • the proposal would help to promote diversity on the trustee board
  • the young person as trustee would bring particular skills and life experience to the charity over and above those of other board members
  • the charity had been unable to retain unpaid trustees with the necessary skills and life experience
  • the recruitment process was targeted properly and was competitive and transparent
  • the primary funder was happy with the proposal
  • the charity had taken, and acted on, independent advice
  • the level of payment appeared reasonable and affordable
  • the conflict of interest and appraisal processes appeared to be effective, robust and practical.

This decision was taken by an Authorised Officer in accordance with our Authorised Officer policy.

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D2 Where we refused to authorise a proposal to pay a trustee for serving as trustee 

The charity

Income - over £15 million pa.

Object - The charity's object is the relief of need of people with mental and physical disabilities.

Activities - The charity runs a residential educational facility. 

Number of trustees – 10.

The initial approach

The charity contacted the Commission seeking consent for a proposal to pay trustees what it called an attendance allowance. A trustee would receive a fixed sum for every trustee meeting attended. The trustees would have the option to decline payment if they so chose. 

Our response

We replied to the trustees, signposting to our web guidance, CC11 and the online form, and stating that the proposed attendance allowance would be a payment for serving as trustee and could only be made with explicit authority. We would only authorise such a payment where this would bring clear and significant advantages to the charity over all other reasonable options. We set out the issues the charity should consider before deciding to go ahead with the proposal, as well as the factors we take into account when deciding whether or not to authorise the proposal.

We also highlighted that the principle of voluntary trusteeship is a major factor in promoting public trust and confidence in charities and that a charity's trustees should only decide to move away from this position after very careful consideration of the possible disadvantages this might bring to the charity.

The case in support of the application

The trustees submitted a completed online form including the following information:

  • the level of payment would be set at a nominal amount per annum
  • the arrangement will be ongoing
  • making the payments would be affordable as, even if all the trustees chose to retain the payment, the amounts involved would be a very small proportion of the charity's annual income 
  • having canvassed potential non-paid trustees, there does not appear to be a bank of volunteers with the necessary skills and life experience to serve on the board
  • the trustees' roles would not change from those that they currently carry out
  • the trustees see the proposal as key in the more rigorous regulatory environment that exists now, as opposed to thirty years ago when the charity was established
  • there was no need for any benchmarking as the level of payment will be a nominal amount, not related to the trustees' earnings
  • the payment will be made for carrying out the day to day duties of trustee, the same as at present
  • the trustees accept that the charity will need more non-paid trustees and they are continuing to try to recruit these
  • the charity's current appraisal system will be expanded to include paid trustees
  • To manage the conflicts of interest, the trustees are prepared to go as far as to say that only non-paid trustees would discuss issues regarding payment. The trustees believe that the policies they are putting in place will adequately manage the conflicts of interest
  • there has been no consultation with stakeholders as making the payment will not impact on the charity's relationships. 

By signing and submitting the form, the trustees confirmed that they were satisfied that the proposal fulfilled the other conditions set out in the declaration and that the charity had filed its latest accounts with us.

Our decision

    We decided not to authorise the proposal because we were not satisfied that the charity had demonstrated the need to pay trustees for serving as trustee, specifically because:

  • the trustees had not provided any substantive evidence of a lack of volunteers with the necessary skills to act; there was no evidence of any recruitment campaigns
  • there was no evidence that the role of trustee in this charity was exceptionally onerous
  • there was no concrete indication of how much the trustees would be paid nor how the level of payment might be set
  • the proposal for dealing with the conflict of interest did not appear particularly well thought out.

This decision was taken by an Authorised Officer in accordance with our Authorised Officer policy and formally recorded as a reviewable decision.

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Legal/Policy Framework

E1 Law – Key points

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  • A charity can only pay its trustees for serving as trustee if it has a clear authority to do so. There is no default legal power that applies to charities, but authority may be found in the charity's governing document or can be granted by the Commission or the court.
  • Where there is no authority, any trustee payment will not be in accordance with the governing document or charity law and this might result in the trustee board, or the individual trustee who has been paid, having to repay all or part of the payment.
  • Reporting trustee payments in the charity’s accounts is a legal requirement for companies, and larger charities, and a matter of good practice for other charities.

E2 Policy – Key points

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  • The principle of voluntary trusteeship is one of the major factors in maintaining the public’s trust and confidence in charities. Moving away from voluntary trusteeship is a significant step and not one to be taken lightly.
  • Where there is a sole trustee, whether this is an individual or a corporate body, it is particularly difficult to justify payment for serving as trustee and to manage the conflicts of interest caused by this.
  • When setting the rate to be paid, the trustees must be able to demonstrate that the rate is no more than is reasonable for the work carried out for the charity.
  • Any existing power to pay a trustee for serving as trustee will be strictly and narrowly interpreted.
  • Where we are asked to authorise a payment, we will only do this if the trustees satisfactorily deals with the criteria set out in the online application form. If it does not, we can refuse to give authority.
  • Where we do give authority, this may be time limited to run for no more than one or two years. Any extension to this period would need additional authority.
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E3 Can a charity pay a trustee for serving as trustee?

A charity is able to pay one or more of its trustees for serving as trustee if it has clear authority to do so. There is no default legal power that applies to charities but authority may be found in the charity’s governing document, or it can be granted by the Court or the Commission.

A charity should only consider paying a trustee for serving as trustee where the charity's trustees are satisfied that, having considered all other reasonable options, this would be in the best interests of the charity.

Where a charity needs authority or consent from the Commission, the form of that consent will depend on the legal structure of the charity (see E6).

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E4 What factors should a charity consider before deciding to pay a trustee for serving as trustee?

This section sets out the various issues that a charity’s trustees will need to consider before deciding to pay a trustee for serving as trustee.

E4.1 Is it a payment for serving as trustee?

Where a charity's trustees are considering paying a trustee for serving as trustee they must be clear that the proposed payment is actually a payment for serving as trustee, rather than a different type of trustee payment. It could be that the proposed payment is a payment for the provision of services to the charity, over and above normal trustee duties. In this case the payments could be made under the power given by section 185 of the Charities Act (see OG515-2). Alternatively, the payments may be wages paid to an employee of the charity who is also a trustee.

E4.2 When might paying for trusteeship be appropriate?

It is only appropriate to pay a trustee for serving as trustee where this will bring a clear and significant advantage to the charity. This is dependent on the particular circumstances of the particular charity, for example, where:

  • a charity’s complexity of operation means that the workload and responsibility of the trustee is exceptionally high, this may be the case where a charity works in a particularly complex regulatory or commercial environment, or
  • the current circumstances of the charity require a greater commitment of time and effort by the trustee. This may be the case where the charity is going through a period of major change, and
  • the charity is unable to recruit or retain unpaid trustees with the necessary skills and life experience. We would usually need to see evidence from the charity’s trustees that, where appropriate, they have tried to recruit unpaid trustees before deciding to pursue the payment of a trustee.

E4.3 Does the charity have an existing power to pay?

The trustees should check the charity’s governing document to see if this includes a power to pay a trustee for serving as trustee. Where there is no such power, the trustees will need to apply to the Commission for authority. If the trustees are in any doubt about the existence of a power to pay they should consult the charity’s professional advisors.

Where a charity’s governing document includes a power to pay a trustee for serving as trustee, the charity will need to comply with any conditions set out within the payment clause, this may include a requirement for the prior written consent of the Commission. Where we are asked to provide consent under an existing power we will consider the case on the same criteria as we would if there was no existing power (see B6).

E4.4 What else must the trustees consider?

A charity must carefully consider the potential consequences of paying a trustee for serving as trustee. Moving away from voluntary trusteeship is a serious step that may bring disadvantages to the charity that outweigh the potential benefit that paying a trustee might bring.

A charity’s trustees should only decide to go ahead with a proposal to pay a trustee for serving as a trustee where they are satisfied that doing so would be in the best interests of the charity.

Trustees should consider the following points before deciding whether or not to pay a trustee:

  • Will having paid trustees affect the ability of the charity to deliver its objectives by reducing the level of funds available to spend on those objectives?
  • How might having paid trustees affect the ability of the charity to raise funds? What is the attitude of corporate or statutory funders to paid trusteeship? Will the payment of trustees affect the reputation of the charity with the general public, in particular, those members of the public who support the charity?
  • Is there evidence about the likely attitude of the founders to paying trustees? If the founders had intended to have paid trustees they would have made provision for this within the charity’s governing document when the charity was established. Have circumstances changed to the extent that the founders might now be likely to agree that payment of trustees is in the best interests of the charity?
  • Will making payments to one or more of the trustees create a two-tier board and will this have a negative effect on the attitude and motivation of the unpaid trustees?
  • What would be the impact on trustee decision making? Would it be necessary to exclude the paid trustees from key decisions about budget setting? If so, what would be the effect of this, would there be difficulties in maintaining a quorum?    
  • What impact might this have on any volunteers working for the charity where the trustees are being paid for their time but the volunteers are not, might this affect the ability of the charity to recruit and retain volunteers?

The charity should consider canvassing the opinions of the charity's members, volunteers, supporters and any other funders as part of the process leading up to the decision to pay a trustee. Any comments should be used to inform the decision making process.

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E5 What authority is needed to pay a trustee for serving as trustee?

Where it is clear that the proposed payments are to be made in return for serving as trustee and the other trustees, after appropriate consultation, are agreed that making such payments would be in the best interests of the charity, the trustees must consider how making the payments might be authorised:

  • Occasionally, there may be provisions within a governing document that allow a charity to pay one or more of its trustees for serving as trustee. Where this is the case, and where there is no requirement within the payment clause for the Commission to consent to the payment, the trustees can make the payment without our involvement. When making a payment under an existing authority within the governing document the trustees must follow any conditions attached to that authority. Where a charity relies on an existing power to pay, the trustees must be able to demonstrate; why making the payment would be in the best interests of the charity; how the level of pay has been set (to include appropriate benchmarking) and; how conflicts of interest will be managed. Trustees must also have regard to the public benefit guidance when exercising this power (particularly Part 6 Managing personal benefits).
  • Where a charity has a trustee payment provision within its governing document that requires our consent, the charity must apply to us for that consent before making any payments, or entering into any binding agreements under which payments would be made. We would expect the trustees to apply for this consent using the online application form. Where we are asked to provide consent under an existing power we will consider the case on the same criteria as we would if there was no existing power (see B6).
  • Where there is no provision within the governing document to pay a trustee, or an express prohibition against trustee benefit, the charity will need to apply to us for authority before making, or agreeing to make, any payments (see E7).

Payments made without authority will be unauthorised trustee benefit and may have to be repaid. (See section F1 of CC11.)

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E6 What types of authority can the Commission provide?

There are various types of authority that we can provide where we are satisfied with the case made by a charity. The type of authority depends on the legal status of the charity and the individual circumstances of the case:

  • We can give a one-off authority to a specific proposal to pay a named trustee for a specified period of time. This would usually be given by Order. (We could not use this method where there is an express prohibition against this in the charity’s governing document.)
  • We can amend (or authorise the amendment of) a charity’s governing document to provide a trustee payment clause, subject to our consent on a case by case basis. We would then rely on this new clause to give written consent to specific proposals to pay a trustee as and when required. This amendment would usually be authorised by s198 consent, where the charity is a company (see OG518), by s226 consent , where the charity is a CIO or by a Scheme, where the charity is unincorporated (see OG500). The statutory power of amendment conferred by s280 of the Charities Act cannot be used to introduce a power to pay a trustee for serving as trustee (see OG519).
  • We can amend (or authorise the amendment of) a charity’s governing document to provide a trustee payment clause, giving authority to pay a postholder, for example, the Chair. We would use this where a charity proposes to pay the holder of a particular post but it has not yet recruited an individual to the post. Where this is the proposal, the charity will need to make the case for authority based on the duties of the post, not the qualities and duties of the individual.

We may decide to grant a conditional authority, ie state that the authority only takes effect in certain circumstances or once certain procedures have been followed. Where this is the case the charity could only make a payment after fulfilling these conditions. The kind of conditions we might attach would depend on the circumstances of each case but may include:

  • a stipulation that the level of payments must not exceed a set amount; and/or
  • a requirement to establish a remuneration committee which has no links to the trustee(s) to be paid ; and/or
  • (where we authorise a general power to pay) a limit on the number of trustees that can benefit.

In deciding whether or not to attach conditions, and what those conditions might be, we need to consider the circumstances of the charity and the particulars of each case. Where the risks attached to a proposal are small we are less likely to attach stringent conditions. However, where the risks are heightened we might be more likely to attach conditions to any authority. The Commission's Risk Framework should help to inform this decision.

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E7 What information should a charity provide when applying for authority to pay a trustee for serving as trustee?

Where a charity's trustees are proposing to pay a trustee for serving as trustee and there is no existing authority, or an existing authority requires the prior consent of the Commission, they will need to apply to us for authority or consent. Where our consent or authority is required, we will only grant this where we are satisfied that the trustees have made a strong enough case, in line with the factors set out in section F4 of CC11, and the online form, that to make the proposed payment will bring clear and significant advantages to the charity over all other reasonable options.

E7.1 The case in support of the application

The application should deal with each of the criteria set out in section F4 of CC11 and the online form. As well as providing details of the financial package, and the duration of the arrangement, the trustees will need to:

  • describe how the proposed level of payment is affordable and confirm that making the payment will not affect the charity’s ability to carry out its objectives
  • confirm that the trustees have tried to recruit trustees with the required skills and life experience who are willing to act without payment. The trustees should be able to provide copies of any recruitment advertisements or correspondence with potential trustees, if requested. (Where the trustees have not tried to recruit unpaid replacement trustees there should be good reasons why not. For example, where the field in which the charity works is so specialised that advertising would not produce any suitable candidates.)
  • explain how the functions to be carried out are genuinely those of trustee. It might be that the role, or some parts of the role, could be carried out as effectively outside of the trustee body therefore reducing the burden on the trustee to the extent that payment is not necessary
  • set out why, having considered alternative ways to deal with the extra workload or responsibility, for example, by sharing tasks amongst the rest of the trustee board or by appointing additional trustees, the trustees are agreed that payment of the trustee will bring clear and significant advantages to the charity over all other reasonable options
  • explain how the level of payment was arrived at, including details of any benchmarking against similar roles that may have taken place
  • describe fully the duties for which the payment will be made. It should be clear from this explanation that the roles and responsibilities of the trustee to be paid are particularly complex and/or bring a particular burden requiring the trustee to give a greater commitment of time and effort than might normally be expected of a trustee
  • set out the risks associated with the payment and explain how these will be managed. This might include risks to the charity's reputation as well as any risks within the charity associated with the payment
  • explain the proposals for reviewing performance including how the trustees will judge value for money and, if necessary, bring the arrangement to an end
  • give details of how the trustees will manage the conflicts of interest in a way that will ensure that the paid trustee can still be an effective trustee
  • include details of any consultation the trustees have carried out with the charity's key stakeholders and set out the results of this consultation
If the applicant is unable to satisfactorily deal with each of these criteria the applicant should explain why not.

E7.2 Confirmation of the trustees' processes regarding the payments

As well as providing the opportunity for the trustees to make a case in support of the application, the online form includes a declaration to be completed by the applicant. This declaration requires the applicant to confirm various details regarding the decision to make the payments, as well as other issues regarding managing the process in the future.

The form requires the applicant to confirm that the trustees are satisfied that:

  • making the proposed payment is in the interests of the charity and will provide a clear and significant advantage to the charity over all other reasonable options
  • it is in the interests of the charity to pay the person named rather than recruit or retain unpaid trustees
  • the person named has played no part in the proposal or decision to pay them, other than to provide information, if requested 
  • the potential conflict of interest will be managed and the person named will not be privy to any discussion or meeting at which the remuneration is discussed
  • the decision to make the payments was taken at a properly convened quorate meeting, excluding any trustees who may have a conflict of interest
  • the trustees, excluding any conflicted trustees, will be able to form a quorum to deal with performance reviews, etc
  • the proposed appointment, taken together with other payments already being made to trustees, will not result in half or more than half of the trustees receiving benefits of any kind from the charity.

The form also requires that the applicant checks that we have received the charity's latest accounts. (If the charity is not up to date with its accounts submission obligations or if the charity's income is below the submission threshold, the applicant must upload the accounts as part of the application.)  

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E8 Managing conflicts of interest

Where a charity proposes to pay a trustee for serving as a trustee, there will be a conflict between the charity's interests and the personal interests of the trustee concerned. It is important, before deciding to make the payment, that the trustees have considered how the conflict will be managed without affecting the ongoing management of the charity. (See our web guidance on conflicts of interest.)

We will take into account the trustees' proposals for dealing with the conflict of interest when deciding whether or not to approve the payment.

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E9 Disclosing and reporting trustee payments

The Statements of Recommended Practice on accounting and reporting by charities (SORPs) set out certain requirements when reporting trustee payments in a charity’s accounts. These requirements apply to all charities that fall under the SORPs. In addition to this, there are a number of recommendations of good practice for all charities when preparing accounts and annual reports.

accountant_referIf we are asked to advise a charity about reporting trustee payments, we should consult a Commission accountant.

 

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Q&A

F1 Can a charity pay a trustee for serving as trustee?

A charity can, where proper authority exists, pay a trustee for serving as trustee. A charity's trustees should only agree to make payments for serving as trustee where they are satisfied that this is clearly in the best interests of the charity (see E3).

F2 How might a payment be authorised?

A charity might have an existing power to pay a trustee for serving as trustee within its governing document. Where it does not, authority can be provided by the Commission or the court (see E5).

F3 When might we authorise a proposal to pay a trustee for serving as trustee?   

Where we are asked to provide authority, we will only do this where we are satisfied that this will bring a clear and significant advantage to the charity over all other reasonable options (see B2.2).

F4 When might we refuse to authorise a proposal to pay a trustee for serving as trustee?

We should only authorise a proposal to pay a trustee for serving as trustee where we are satisfied that this will bring a clear and significant advantage to the charity. Part of our decision making involves us considering a number of factors to see if the charity has satisfactorily dealt with these. Where the charity cannot make a convincing case, we will refuse to authorise the proposal (see B4).     

F5 How should a charity set the rate of pay?

When paying a trustee, the rate of pay must be reasonable for the level of service provided. The most effective way to ensure that this is the case is for the charity to carry out a benchmarking exercise looking at similar paid roles in similar charities (see B7).

F6 Can a sole trustee be paid for serving as trustee?

It is possible for a sole trustee to be paid for serving as trustee, this applies whether the trustee is an individual or a corporate body. Payment of a sole trustee brings additional issues, particularly around managing the conflict of interest, which must be satisfactorily dealt with before payment can be made (see B5).  

Model Letters

G1 Model refusal letter

Dear #

Thank you for your [letter][form] [dated][received on] # setting out the case for the payment of # for serving as trustee of the charity.

As the independent regulator for charities, the Commission will only authorise a proposal where we are satisfied that this is expedient in the interests of a charity. In the case of a proposal to pay a trustee for serving as trustee we must be entirely satisfied that the non-conflicted trustees have decided that making the payment is in the best interests of the charity and will enable it to better deliver its charitable purposes

In this case, having considered your submission, we are not prepared to authorise the proposed payment in its current form. Specifically, we are not satisfied that:

#

#

It is for these reasons that we have decided not to authorise the proposed payment. This is a decision of the Commission.

If you think this decision is wrong, you can ask us to reconsider this by completing the form on our website. Further details about our decision review service and other remedies that might be available to you can also be found on our website.

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