25 Sep Do Members of an Advisory Board Get Paid?
If you’re thinking of starting or joining an advisory board, you likely have compensation on the mind. What is the advisory board salary, or do advisory board members work for free? You need to know before you take the next step and join a board.
In reality, there isn’t a clear-cut answer to this. Most advisory board members are paid in some way, but that’s not always the case. Also, the advisory board salary depends on both the board member and the business.
With so many things hanging in the air, let’s take a closer look at how this works. First, let’s look at compensation options, and then let’s go over the factors that go into determining how much someone earns while serving on the board.
When looking through the various compensation options, keep in mind that most companies offer a combination of options.
A Standard Salary
A standard salary is the most common compensation method. Many companies choose to pay advisory board members the same amount they pay their corporate directors or just a bit less. A yearly salary is a good option for companies that rely heavily on their board and intend to have a lot of meetings. Think of a salary as a retainer. It ensures that each board member is available as needed.
Companies can also pay board members on a per-meeting basis. Advisory board members receive an agreed-upon amount for every meeting they attend. If they are unable to attend a scheduled meeting, they do not receive compensation. Unlike a regular salary, this is not like keeping board members on retainer. They only get paid when they show up for a meeting, so they might not want to answer questions and offer help outside of meetings.
Startups often get advisors onboard with the promise of compensating them after the company takes off. For instance, the board members might work for free at the beginning, and then get 0.5 percent of the profits.
This is the best option for startups since they typically don’t have a lot of money in the beginning. They are focused on raising money and getting the company off the ground, so the promise of future profits is much better than paying a straight salary. Advisors are also usually open to this since they can turn a nice profit if they help the startup make money.
A stock is another option for paying advisors. The stock can be the sole method of payment or it can be used in combination with another form of compensation. A company that has 10,000,000 outstanding shares should consider issuing the advisor at least 10,000 shares of the stock for a casual relationship. If the advisor is going be more involved, 25,000 to 100,000 shares is more in line with the going rate.
Some advisory boards’ members only receive compensation for expenses, but this is usually done in combination with other forms of compensation. The board members are paid for all the expenses incurred from serving on the board, such as transportation and meals. That way, board members do not lose anything by serving on the board.
Now let’s look at the factors that go into determining the compensation that advisors receive.
The quality of the advisor goes a long way in determining how much he or she earns. Industry leaders are worth more than C-level executives and should be compensated accordingly. If you’re willing to compensate high-quality board members at a fair rate, you can expect to attract top talent.
Advisors who meet regularly and provide lots of valuable advice should be compensated more than those who only meet a couple of times a year and take a backseat approach. You want to attract advisors who are engaged, and you should compensate them accordingly. Failure to do so will make it hard to retain high-quality advisors.
Size of the Company
The company’s size also factors into the compensation level. The bigger the company, the more it should compensate advisors. On the other hand, small companies can get away with offering little compensation, at least on the front end.
Companies might also consider additional benefits when choosing the advisor’s compensation. For instance, an advisor who seeks out the advisory role for industry experience might be compensated less than an advisor who is doing it as a favor for the business owner. Keep this in mind when analyzing the compensation for board members.
While most advisory board members get paid, it varies greatly from one position to the next. Companies should evaluate the role of the advisor and offer the right amount of compensation. That will allow owners to attract quality advisors who will help their companies succeed in the competitive business world.