Yes — in most states, one person can be both a board member and the executive director of a nonprofit, as long as the organization’s articles of incorporation and bylaws don’t prohibit it. The arrangement is common in small and early-stage nonprofits, but it comes with real conflicts of interest around pay and oversight, and federal tax law imposes specific rules that carry steep personal penalties when they’re ignored.
The rest of this article walks through what to check before the appointment, how the seat should function, how to set compensation defensibly, and how to unwind the arrangement cleanly if employment ends.
Check Your Bylaws and State Law First
Start with your own governing documents. Most state nonprofit corporation statutes allow one person to hold multiple offices and a board seat at the same time, but that default gives way to whatever your articles of incorporation and bylaws say. If either document bars the overlap, limits how many compensated people can sit on the board, or requires a separation between staff and directors, the board has to formally amend the document before making the appointment.
Some states also cap the share of “interested” directors — board members who are compensated by the organization or have a financial interest in its decisions. If you already have paid staff or contractors on the board, adding the executive director could push you over the state limit. The exact percentages and definitions vary, so read your state’s nonprofit corporation act or ask a local attorney before you proceed.
Governance practice sets a tighter bar than the statutes. A board dominated by paid insiders can’t credibly oversee its own management, and most governance guidance recommends that if the executive director sits on the board at all, they be the only compensated employee to do so.
How the Seat Should Work: Voting, Recusal, and Quorum
An executive director who joins the board usually holds an “ex officio” seat, meaning they serve by virtue of the job rather than through a separate election. Your bylaws should spell out whether that seat votes or is advisory only. Many organizations pick non-voting ex officio status to keep a clean line between staff operations and board governance.
If the seat does vote, the bylaws should strip that vote whenever the board is deciding something about the executive’s own employment. The executive director should not vote on, and ideally should leave the room during discussion of, their own salary, benefits, performance review, contract renewal, or discipline. Putting these recusal rules in the bylaws prevents one person from shaping decisions about their own standing.
Make Sure You Still Have a Quorum After Recusal
When the executive director steps out for a conflicted vote, the remaining directors still have to constitute a quorum. On a board of three or four, losing one member to recusal can leave you unable to act. Before you create the dual role, confirm the board is large enough to keep a quorum with the interested member out of the room. If it isn’t, expand the board first, or add a bylaw provision that addresses how quorum is calculated when a member is recused.
Setting Pay Without Triggering IRS Penalties
The riskiest part of this arrangement is compensation. Under Section 4958 of the Internal Revenue Code, an executive director who also sits on the board is a “disqualified person” — someone in a position to exercise substantial influence over the organization’s affairs in the five years before a transaction. If that person receives pay above fair market value for the role, the IRS can impose escalating excise taxes on the individuals involved (not the organization itself):1Office of the Law Revision Counsel. 26 USC 4958 – Taxes on Excess Benefit Transactions
- A 25 percent initial tax on the executive, calculated on the “excess benefit” — the amount by which total compensation exceeds what’s reasonable.
- An additional 200 percent tax on the executive if the excess isn’t returned within the applicable period.
- A 10 percent tax on any board member who knowingly approved the unreasonable pay, capped at $20,000 per transaction.
Beyond these excise taxes, a pattern of excess benefit transactions or private inurement can cost the organization its tax-exempt status altogether.2Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc.
Use the Rebuttable Presumption of Reasonableness
The main protection against those penalties is the “rebuttable presumption” in Treasury Regulation 53.4958-6. Follow its three steps and the IRS must assume the compensation is reasonable unless it can prove otherwise, shifting the burden of proof onto the agency:3GovInfo. 26 CFR 53.4958-6 – Rebuttable Presumption That a Transaction Is Not an Excess Benefit Transaction
- Approval by an independent body. Compensation must be approved in advance by board members (or a committee) with no conflict of interest in the arrangement. The executive whose pay is being set cannot participate.
- Comparability data. The approving body must obtain and rely on data showing what similar organizations pay for comparable roles — salary surveys from independent firms, compensation reported on Form 990s by peer organizations, or written offers from competing employers. For organizations with annual gross receipts under $1 million, data from at least three comparable organizations in the same or similar communities is enough.
- Contemporaneous documentation. The basis for the decision has to be recorded at the time it’s made, not after. The minutes should capture the terms of the arrangement, the comparability data relied on, who was present, how they voted, and how any conflicted members were handled.
Meeting these three conditions doesn’t guarantee the IRS will never look at the pay, but it puts the organization in a strong defensive position if it does.
Conflict of Interest Policy
A common misconception is that the IRS requires 501(c)(3) organizations to adopt a formal conflict of interest policy. It doesn’t. The IRS instructions for Form 1023 state plainly that “adoption of a conflict of interest policy isn’t required to obtain tax-exempt status.”4Internal Revenue Service. Instructions for Form 1023 (Rev. December 2024) The IRS does strongly recommend one, and Form 1023 asks whether the organization has adopted a policy. Any nonprofit with a board member who is also a paid executive should have a written policy in place. It should describe when and how conflicted members disclose their interests, recuse themselves from discussion, and abstain from voting.
Steps to Make the Appointment
Order matters. Working through these steps in sequence produces the paper trail the rebuttable presumption depends on.
- Review the governing documents. Read the bylaws and articles for clauses that block overlapping roles, cap compensated directors, or require staff-board separation. Amend anything in the way before you proceed.
- Gather comparability data. Pull salary benchmarks from peer organizations of similar size, budget, and mission — Form 990 filings are public for every nonprofit, and independent compensation surveys and documented competing offers all count.
- Draft the employment agreement. Cover salary, benefits, responsibilities, term, performance review, and termination. Include a clause specifying what happens to the board seat if employment ends.
- Complete conflict of interest disclosures. Have the individual fill out a written disclosure identifying any financial interests that overlap with the organization.
Bring the appointment to the full board at a scheduled meeting. The interested person leaves the room before deliberation and voting. The secretary records that a quorum remained after the recusal, that the executive was absent for the discussion and vote, and that the board reviewed specific comparability data in setting pay. Those minutes are the foundation of the rebuttable presumption.
Once the vote is done, the executive director and a designated board officer sign the employment agreement. Update the organization’s records with the appropriate state agency — most states require periodic filings listing current officers and directors — and keep the original minutes and supporting documentation on file permanently. An IRS examination or state audit may reach back years.
Reporting the Dual Role on Form 990
The overlap has to be disclosed on the annual Form 990. Part VII requires every tax-exempt organization to list all current officers, directors, and trustees regardless of compensation, along with each person’s title, average hours worked per week, and total compensation from the organization and any related entities.5Internal Revenue Service. Form 990 Part VII and Schedule J – Reporting Executive Compensation Individuals Included If total reportable compensation exceeds $150,000, the organization also has to complete Schedule J, which asks for a detailed breakdown of the compensation components.6Internal Revenue Service. Filing Requirements for Schedule J, Form 990 Form 990 is a public document, so donors, journalists, and watchdogs can all see what your executive director is paid. The documentation built through the rebuttable presumption process is what protects the organization if that pay is later questioned.
Plan for the Day the Employment Ends
One of the most overlooked risks is what happens when the employment relationship ends. A fired or resigning executive director may still technically hold their board seat, which can turn an already difficult transition adversarial. The cleanest fix is an automatic resignation clause in both the employment agreement and the bylaws, stating that the board seat terminates automatically when employment ends, without a separate vote or removal process.
Without that clause, you’ll fall back on standard director removal procedures, which usually require a vote of the full board and can be time-consuming and contentious if the departing executive resists. Many agreements make board resignation a condition of severance or other post-employment benefits, a structure used in both nonprofit and for-profit settings.