'If you beamed down from planet zog you would think it strange that housing association staff get so much money, while boards hardly get a penny'
The heated debate over whether to pay board members has entered a new phase – now it's a question of when and how, rather than if.

Six months from now, housing association board members across the country could be pocketing their first pay cheques. After years of debate, the release of a Housing Corporation consultation paper last month, outlining proposals to pay board members up to £20,000 each, means what was once a radical proposal is now a practical reality.

Moat Housing Association chief executive John Barker recently described the continued governance of registered social landlords by boards of volunteers as having the "potential to be a recipe for disaster for the sector." Yet Lady Joyce Montgomery, Harvest Housing Group chair, is just as vehement in her support for the "voluntary ethos" of retaining unpaid board members. She predicts the issue will "split the movement from top to bottom", and adds that Harvest's 60 board members show scant enthusiasm for payment.

We've all heard these arguments in one form or another and the debate over the payment of local government councillors echoes them (see box, page 24). They can be summarised like this: the sense of civic duty will be sacrificed through payment but new blood is urgently required in most associations, and, as the majority of board members are either retired or unemployed, in the end, it all boils down to one basic dilemma – money.

Large charitable trusts such as Peabody and Guinness say they have no need to pay their boards as their prestige affords them ample candidates. Peabody, for instance, counts among its board members American ambassador William Farish and Dudley Fishburn, chairman of HFC Bank. The corporation's consultation paper asked smaller associations how they could improve their governance without stretching their finances to the point where the corporation might have to step in. Next Wednesday's London Housing Federation debate on the subject is set to be a passionate affair.

Derek Joseph, executive director at consultant Hacas Chapman Hendy, says there are two questions for such RSLs to address when responding to the paper: "The first is whether or not to pay board members and the second is how much to add for work above being an ordinary board member – for example the chair or treasurer."

Joseph says that there should be an independent assessment of the board, examining issues such as the sort of skills that are missing from the mix of people. The result of this should be a clear picture of what is wanted from each board member, which should form a contract providing a job description, and also cost the process in terms of time and responsibility.

There will have to be a remuneration committe, he says: "If you're going to pay people there's got to be a requirement to perform. The job description is the key. Read the papers; attend board meetings; take part in discussions. There will be other targets apart from financial – for example, putting in place plans to achieve targets following a stock condition survey, tenant satisfaction and performance under inspection."

Appraisal in practice
RSL Places for People already has a system of board member appraisal. The system – called the board health check – collects people's opinions about how the board is working and then feeds back through an annual improvement programme. The Anchor Trust has also been using an appraisal system since 1999 and would continue to use this should it start paying its members. The chairman, chief executive and deputy chief executive of the RSL, which has 35,000 properties, 10,500 staff and an annual turnover of £200m, assess board members' performance in three main areas: skills and knowledge; personal qualities and ways of working. The key areas within these are "the ability to assess the financial performance of the business, accounting skills and the willingness to be subject to annual appraisal", according to a spokesman. The information is used to decide how much board members should be paid, but he stresses that it is "not as straightforward as performance-related pay, as board members are also assessed in terms of the responsibilities they take on".

Performance-related pay is a controversial issue. Hacas Chapman Hendy's Derek Joseph says: "I would prefer to see performance-related pay, as essentially you want board members to be successful." This would have to be based on the performance of the board as a whole, rather than on an individual basis, he says: "The only time individuals should be assessed is when they have a particular responsibility." But Peter Malpas, housing policy professor at the University of West England, says: "It would be incredibly divisive to pay some board members more than others. It would be very difficult to implement. Given the opposition of most board members to being paid, a flat rate would make much more sense. If you pay people you then have a strong case for introducing board member appraisal on an annual basis, but not linked to pay."

Malpas, who previously sat on the board of Somerset-based Knightstone Housing Association as a deputy chair, feels that if the payment of a board results in new blood coming into the organisation, then it may well be a good thing. He also has concerns that "the taint of charity and condescension of the upper classes [who tend to populate boards] is a bad thing for the sector" and hopes that if payment is introduced, it will engender a more businesslike attitude.

The bottom line
A key passage in the Housing Corporation's consultation paper refers to the need for associations to prove that paying board members actually improves governance without adversely affecting its ability to deliver tenant services. Malpas calculates that the cost of paying boards could be as high as £100,000 for some associations – a significant factor on the balance sheet.

As rent restructuring generally means associations can't increase rents, cutting back on tenants services is an inevitable consequence of payment, he says: "As a result, you might find that only those associations with more than 10,000 units actually do it and the vast majority refuse."

John Castelberg, chief executive of Kingston-upon-Thames Churches Housing Association, agrees. He says that his preference, if pushed, would be to rule out paying board members, because "we can't pay substantial sums of money". However, he does admit: "If you beamed down from planet Zog, you would think it strange that housing association staff get so much money, while boards hardly get a penny."

Castelberg's is a relatively small association, with around 250 units under management – exactly the type of RSL the corporation hope payment will help. Castelberg says: "Board recruitment is a big issue for us. We need some younger and more professional blood, but even if we did pay board members, it would widen the gap even further between smaller and larger associations in terms of the quality of people we could attract. All those interested would tend towards bigger and better-known bodies like Places for People and Home.

"I would prefer something more in the way of an attendance allowance, paid to people's employers rather than to individuals directly. If we took a decision to pay, we would probably pay the chair and the treasurer, rather than all the board members. We couldn't justify paying anything like the six-figure sums being talked about elsewhere."

So, do the larger players agree? Housing heavyweights don't get much bigger than Places for People, which turns over £185m a year and has roughly 45,000 properties. Chief executive David Cowans is right behind the idea of paying board members: "My view is that we're in a very broad church and there is lots of scope for retaining the voluntary ethic," he says. "But you need people who are able to advise, not just those with lots of time on their hands. It's part of the sector maturing. Where it's appropriate and results in stronger governance, it is entirely sensible and reasonable."

NHF guidance
The National Housing Federation has reservations about the payment of board members, but feels that if it must be done, it has to achieve a large change in the performance of boards and standards of governance. To this end, it plans to produce a guidebook to coincide with the publication of the results of the corporation's consultation – which closes in February next year.

NHF deputy chief executive James Tickell says: "There is a large problem for any board that decides to pay its members, but there are some who choose not to claim it – for example if they are on housing or income support." He adds that the Inland Revenue could also come into play, as in some cases it will view the opportunity to accept payment as though a person has accepted that payment, whether they actually have or not.

Tickell also points out that the Charity Commission has joint regulatory responsibility for around 200 associations and that any which wished to pay their board members would have to submit proposals to the commission. In September 2000 the commission issued the results of a 12-month consultation process which concluded that it would be permissible under some circumstances for charities to pay their trustees. Anchor Trust chief executive John Belcher has already said he will "seriously consider" presenting a case for paying its board to the commission as soon as possible.

Kingston-upon-Thames Churches' John Castelberg sums up the dilemma. He points out that the 150 delegates at last week's NHF conference for smaller housing associations concluded that "the most important thing is that [payment] runs contrary to the voluntary ethos", but adds: "I am aware of the arguments against, but I can equally see a business case where payment can attract board members of all shapes and sizes."

Smaller associations may wish to preserve the voluntary ethos, but they may have no choice if they are to recruit new, young, economically active board members.

Graham Horton: Tenant board member, Gallions Housing Association

I don’t necessarily disagree with the idea but I don’t see how it could be enforced. I don’t think it would attract any more people and there’s also an issue over how it would affect tenant board members who may be on benefits. Would being a paid board member affect their benefits? If so, would it mean that they would have to choose? There could be a two-tier system between them and non-tenant board members. Also, there has to be clarification over whether paid staff could also become board members and whether they would also be paid for this. If people are getting paid, you would have to set performance targets, which raises questions about who sets them and how the standards are monitored.

Horace Plummer: Board member, Beaver Housing Association

The option to pay should be there. Many associations are like businesses and they have a financial responsibility. Working as a board member requires a great deal from people – a lot of time goes into the running of the association and the pressure of modern life means there has to be an incentive. Many tenant members who sit on boards need to cover expenses like babysitting costs and these things need to be considered. The amount people should be paid would depend on the individual amount of time that has been put in – it could be done pro rata so people are paid fairly in relation to the time they put in. I don’t see why it couldn’t work – NHS Trusts are always paying board members and I think it will be an added bonus.

Rev Robin Martin: Chair, Riverside Midlands

I don’t agree with paying board members. Our board has considered this and the main problem with it is that it could create a barrier between ourselves, the tenants and the residents. I also don’t really think it i s necessary because up to now we’ve never had any problems recruiting people. Such a proposal would raise contractual differences and there may be conflicts of interest. At the moment, whatever a person’s professional background, he or she can give advice or express an opinion and that system is much better. It is far better for us to maintain the voluntary nature of the movement.

John Farrant: Chair, William Sutton Housing Alliance Trust

I agree with the idea of paying board members. Professional board members devote their time and knowledge to discharging their responsibilities in an effective way. There are housing associations with boards of 15 or 16 people and this is unwieldy. The people on them have good intentions but aren’t prepared to do the necessary work. The other issue is age – if we are to attract people who are still working in the sector, we are going to have to compensate them for their time. Some small large fees but it’s up to each to pitch the payment at an appropriate level. I think pay has to be tied to a scale for each organisation, based on the complexities of that organisation and the time individuals give up.

Chris Calder: Vice-chair, Housing for Women

I don’t agree with payment because I don’t understand what it’s going to achieve. There is really a nasty undertone to all of this: the assumption that people are motivated by money. This is also the road that says if you are a volunteer then you don’t take things seriously and you don’t have a professional attitude, which is wrong. It is perfectly reasonable to expect the volunteers on your board to carry out their work effectively and with a level of commitment – if they don’t do this then boards are perfectly within their rights to ask them to leave. I think the only valid point is for people to be reimbursed for extra expenses so that their role as a board member doesn’t leave them out of pocket.

The decision to pay councillors

Any move to pay board members would echo the changes that took place in January 2002, whereby local councillors were able to draw an allowance for their services. That decision followed the 1999 Association of London Government report Making Allowances, which responded to the prime minister’s agenda of modernising local government. The report recommended London councils change the way they compensate their councillors, and recommended a basic annual allowance of £8500 for councillors in London. The idea was that the allowance would enhance the status of councillors and encourage a new generation of citizens to stand for election. Several councils have already started paying their board memebrs an allowance, and the move is helping to bring a more diverse range of people into the role. Hillingdon councillor David Bishop, who’s ward is Northwood Hills, believes extra money is a good thing. He says: “I think the move will lead to renewed interest in local politics and will be an incentive for people to consider becoming councillors.” However Katia David, a Conservative councillor in Barnet, north London, has mixed feelings about it. She says: “While there is a lot of work that goes into being a councillor, the fact is that people never used to expect to be paid. My concern is that the wrong calibre of people – who are motivated by the money – may be attracted to councils.”

‘commentators have insinuated that ‘fat cat’ payments will follow, but actually the issue is one of responsibility’

Payment to board members will increase, not reduce, their sense of duty because they must accept greater responsibility to the RSL for which they work, says Andrew Cowan Payment of the board members of our RSL clients has been on the agenda for some while. The fact that the housing corporation consultation paper seeks views on how to, rather than whether to, pay board members is indicative of a sea change in the sector. So far, most commentators have focused on insinuating that “fat cat” payments will ensue. Actually, the issue of payment is one of the acceptance by non-executives of increased responsibility. Looking at the corporate sector, the position of non-executive directors is increasingly scrutinised, but for a different reason: whether or not they have prevented mismanagement. In a sector where there has never been a recognition of board member negligence, the Housing Corporation wants boards to be more responsible. If they are to be more responsible, they will need to be able to review robustly the performance of each board member, removing those who do not perform. The levels of remuneration involved are unlikely to be sufficient to recruit a new breed of “professional board member”, but will be sufficient to establish the nexus of duty. One result may well be to increase the responsibilities of board members on mergers; indeed, it will be interesting to see what impact this has. Whether it results in more professional boards or better-performing RSLs is a complex issue. The more important output from the exercise, though, is whether it assists in the recruitment, retention and performance of non-executive board members. Thorny issues remain about how tenant board members should be rewarded, particularly where they are on housing benefit, and whether payments to parent board members should cascade down the group to the subsidiary bodies and boards. The fair resolution of these issues will make the politics of payment a success; failure will mar the position of the remainder. What is certain, though, is that the relationship between non-executives and executives will change, perhaps fundamentally. To date, the position of a voluntary board is distant from operational decisions. While this should not change, the position of a “more responsible” board member, particularly a chair, will inevitably veer to more interaction. This will pose a governance conundrum for chief executives – but a positive one. Boards could include executives and non-executives (so long as non-executives are in the majority). In this instance, the role of non-executives would be much more inclusive, in that they would be working with the senior management team rather than just reviewing the team’s work. This would inevitably mean the number of non-executives needed reduces (and thus the potential bill for payment). The issue highlights the cultural differences and risk of different RSLs. Care-based RSLs could be said to carry proportionately higher “risk”, but have no difficulty in attracting good-quality board members. Indeed, some of my largest clients are opposed in principle to any payment. This is a good thing. We can see a shift to payment over a period of time but, inevitably, there will be some failures. Before a wholesale change occurs, the sector and the Housing Corporation need to gain experience of the benefits and disadvantages of the process and how these persons are recruited. However, we believe the corporation has a continuing role in managing the limits on payment and punishing publicly those who breach them. As a parting shot, those seeking change who have adopted the new NHF model rules without amendment, should be aware that any change will necessitate a rule change requiring shareholders’ approval. This should provoke an interesting shareholder meeting.
  • Andrew Cowan is head of banking and group structures at solicitor Devonshires