Spokes | Resources for Nonprofits

Find Us On Social Media:

LinkedIn

What Should I Pay for D&O Liability Insurance?

by

Recently, a Spokes member asked a simple question: “We just received a quote for Directors and Officers insurance. Does the premium seem reasonable?”

Good question! To help answer it, I decided to compare what three local nonprofit organizations I know are paying for Directors and Officers (D&O) liability insurance.

Here’s what I found:

OrganizationAnnual Cost
Recreational club — 501(c)(7)$740
Spokes — 501(c)(3)$1,854
Community civic league — 501(c)(4)$2,230

That’s quite a range! But as I dug deeper, I discovered that comparing premiums alone can be misleading.

For example, Spokes is the only one of these organizations with paid employees. Its $1,854 annual cost includes $713 for Employment Practices Liability Insurance (EPLI), which protects against certain employment-related claims, plus a $250 broker fee. The D&O portion costs just $891.

All three organizations carry $1 million in D&O coverage, but their policies differ in important ways. Some have no deductible (technically called a retention), while others require the organization to pay thousands of dollars before coverage kicks in. Another significant difference is whether legal defense costs reduce the amount available to pay a judgment or settlement.

I also discovered something surprising. The organization paying the highest premium is a small, volunteer-run civic league with no employees. Yet its policy includes provisions designed for homeowners associations, even though the organization has no authority to regulate neighborhood properties. That raises the possibility that the insurer may not fully understand the organization’s activities and risks.

So, how can you tell whether your nonprofit’s D&O insurance quote is reasonable? Here are five things to consider:

  1. Coverage limits and deductibles. How much protection are you purchasing, and how much would your organization have to pay out of pocket if a claim arises?
  2. Legal defense costs. Are attorney fees and other defense expenses included within the coverage limit, or are they covered separately? This can make a substantial difference.
  3. Employment practices coverage. If your organization has employees, does the policy include protection against employment-related claims such as wrongful termination, harassment, or discrimination?
  4. How the insurer classifies your organization. Does the insurer accurately understand what your nonprofit does? An incorrect classification could affect both premiums and coverage.
  5. Exclusions. What isn’t covered? Pay particular attention to exclusions that might apply to your organization’s specific activities and risks.

The bottom line: Don’t evaluate D&O insurance on price alone. Two policies with the same $1 million coverage limit may offer substantially different protection. Ask your insurance broker to walk you through these five considerations—and don’t hesitate to request a competing quote.

A little homework could save your nonprofit money while ensuring that its board members and officers have the protection they need.

Perks for Board Members?

by

Recently, one of our Spokes member organizations inquired about the legality of providing a “perk” to board members. In this particular instance, the perk would be free tuition to an educational program run by the nonprofit. I had some concerns about such a practice. With the help of ChatGPT, I did some research and my concerns were confirmed. Here’s how I responded:

Providing a tuition discount to board members whose children are enrolled in your program is not automatically prohibited, but it raises several important legal and governance concerns that should be carefully considered.

First, under California law, a director who receives a material financial benefit from the organization may be classified as an “interested person.” If multiple board members utilize the discount, this could risk exceeding the rule that no more than 49% of the board may be composed of interested persons.

Second, while this type of discount would not be considered compensation, it does represent a financial benefit tied to board service. The Internal Revenue Service generally prohibits private inurement and limits private benefit in 501(c)(3) organizations. A benefit available only to board members—rather than based on need, employment, or program criteria—may raise concerns in this area.

Third, offering such a benefit introduces ongoing conflict of interest considerations. Board members receiving the discount would have a personal financial interest in decisions related to tuition, enrollment, and program policies, requiring disclosure and recusal. This can complicate governance and affect public trust.

Finally, there is an equity consideration. A tuition discount would only benefit board members with age-eligible children, creating an uneven “perk” structure that may affect board culture and recruitment.

Best Practice Recommendation
Most nonprofits avoid providing financial benefits tied to board service. Instead, they maintain board roles as strictly voluntary and uncompensated. If tuition assistance is offered, it is typically structured based on objective criteria such as financial need or made broadly available to program participants, not linked to governance roles.

Conclusion
While the proposed policy may be legally permissible if carefully structured, it carries sufficient legal, ethical, and practical concerns that it is generally not recommended as a best practice.

Can We Pay a Director to Work for Us

by

It’s a common question for small nonprofits: if one of our board members has the skills we need, can we pay them to also serve as our executive director, consultant, or contractor?

The short answer is yes — but with important safeguards.

  • Separate roles: Payment cannot be for the person’s work as a director. Board service itself is almost always expected to be voluntary. But if a director is also providing staff or contractor services — for example, serving as CEO, bookkeeper, or program manager — they may be compensated for that work.
  • Conflict-of-interest rules apply: The director must not participate in board discussions or votes about their own hiring, compensation, or contract. The rest of the board should handle those decisions independently.
  • Document everything: Board minutes should record the disclosure of the dual role, the director’s recusal, and the process the board used to determine that compensation is fair and reasonable. Looking at comparable salaries or fees in your area helps show the board acted responsibly.
  • Think about optics: Even if legal, paying a board member can raise questions from funders or the community. Transparency, clear communication, and good governance practices go a long way toward building trust.

✔ Bottom line: Your nonprofit can pay a director for separate staff or consultant work, but you need to handle conflicts of interest carefully and document the process. Done right, it’s both legal and acceptable.

⚖ Employment law caveat: In addition to nonprofit governance rules, standard employment laws still apply. For example, in California it’s often difficult to classify someone as an independent contractor if they are carrying out core functions of the organization. In many cases, paying a director for staff-level work must be done through regular payroll as an employee, with all the usual tax and labor law compliance.

This article is provided for general educational purposes only and is not legal advice. For specific guidance, consult with a qualified attorney or HR professional familiar with your organization’s circumstances.

Setting CEO/ED Compensation: What Boards Should Know for 2026

by

Every year, nonprofit boards face the responsibility of reviewing the salary of their CEO or Executive Director. A thoughtful approach ensures fairness, compliance, and organizational sustainability. Spokes’ new guidance sheet highlights six essentials for boards: staying compliant with IRS rules, reviewing market data, assessing organizational health, evaluating leadership performance, supporting retention, and using a clear, documented process.

To complement this, we’ve prepared a companion snapshot of regional inflation and San Luis Obispo County cost-of-living data. With CPI currently around 3% and local housing costs more than double the national average, boards have the context they need to consider reasonable cost-of-living adjustments (COLA). Together, these resources give boards a transparent, data-driven framework for making confident salary decisions.

Download the full 2-page guidance sheet here.

Spokes members also have access to a regional compensation survey. Log into your Spokes account to request access.

Microsoft 365 Business Premium grant being discontinued

by

Does your nonprofit currently enjoy a Microsoft 365 Business Premium grant? If so, not for long. The company announced this program will expire September 1, 2025.

Capital Campaign Pro’s Steven Shattuck has written a concise blog post that outlines the changes and suggests some alternatives. It also has a link to join an effort to convince Microsoft to reverse course.

Techsoup has current information on what nonprofit discounts will still be available if you qualify and want to continue your use of Microsoft 365.

Guiding nonprofits to achieve their goals through support and expert resources.

How Can We Make A Difference Together?

Spokes welcomes local professionals who would like to share their expertise in support of the nonprofit sector.

Get Started Contributing

Recent Articles