My grandfather, Maurice Matteson, collected ballads at Beech Mountain NC. He published Beech Mountain Ballads with G. Shirmer.
Usually the source singers were not paid, but then neither were the collectors. I doubt any royalties or other compensation were paid from subsequent arrangements of the folk songs (but credit was given to the source singer).
The amount of money Sharp made from his arrangements was negligable.
The real problem came when country music recording were made in the 1920's and aslo later recordings (like the Kingston Trio's recording of Tom Dooley). There was real money was involved.
When Vernon Dalhart had the first million dollar seller with the "Wreck of the old 97" the author was never compensated. He took the record company to court, won a $60,000 ruling but appeals tied up the money preventing him from ever collecting.
John Jacob Niles made money off "I wonder As I wander" which he claimed he heard from a little girl and paid her some change.
The problem is that many of the source singers got the song from other singers. They weren't the authors themselves!