New York's Cooperative and Condominium Community
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It was a dilemma – a board member wanted to be compensated.
Should board members be paid? And if they are, what kind of Pandora’s Box are you opening?
It was a dilemma.The president of a small, self-managed Manhattan co-op had worked with the treasurer, whom we’ll call Clark, for more than a dozen years. Clark is what you might call indispensable in a small building like this. He is diligent, responsible, and absolutely nuts about details. When a project needs to be done, he is usually right on top of it, supervising the bidding process, working with the engineer and contractors. He also meets with the accountant, prepares a monthly management report, deals with the Department of Buildings and other governmental agencies, and takes on tasks that no one else wants to do or could do as well. Yes, he seemed to be the answer to a small building’s prayers. But then the dilemma occurred. Clark wanted to be compensated.
In the grand scheme of things, he wasn’t asking for a lot. Just $500 (about a third) off his maintenance every month. The president talked to the co-op’s attorney, who said, “It’s not a good idea.” Generally speaking, he explained, board members are not supposed to be compensated, and in this case, the bylaws forbade it.
The president reported this to the board, and Clark took it gracefully. That seemed to be the end of it – until about six months later when Clark brought it up again. This time, he was fairly firm, saying he would like to be compensated despite what the attorney said. He didn’t want to step down and become the manager. He wanted to be kind of a Superman-style board director: he would make policies in his role as mild-mannered Clark Kent, and execute them as the irreplaceable Superboardmember. He said the $500 was just a token, an acknowledgment of the time he spent caring for the building. So, what’s the big deal? Why was the co-op’s attorney opposed to it? “It’s a bad idea,” says attorney Bruce Cholst, a partner at Anderson Kill, “because everyone has the mindset that board service is a volunteer, not a professional, thing. It also sets a precedent for compensating all board members. Are they doing this for mercenary reasons, or out of a volunteer spirit?”
“It’s a volunteer organization where you’re putting the goal of the group ahead of your personal goal,” notes attorney David Berkey, a partner at Gallet Dreyer & Berkey. “Corporate boards get paid, but it’s not equivalent to what a salary would be; in essence, it’s a payment in recognition of the time that they spend. It’s like a token.”
Berkey adds that corporations and housing cooperatives are different. “A corporate board is trying to maximize the profit,” he says. “In a co-op, the board is trying to maximize the value for the shareholders.”
“Being on the board is intended as a voluntary thing,” adds Cholst. “This is your home. If the bylaws permit [board compensation], it’s not illegal. It goes against what the spirit of co-op and condo living is all about. I mean, it’s not intrinsically evil.” But not being “intrinsically evil” is hardly a ringing endorsement of compensating a board member, now is it? So, if you pay a board member – as this small co-op wound up doing – do it with your eyes wide open. “If you pay one person,” Berkey notes, “it’s opening a door, and you may end up paying everyone. It’s not something I would do.”
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