Guides
How much are startup board members paid?
It’s a common question, both for directors and companies: “Do startup board members get paid?” The answer is yes, but payment (remuneration) can come in different forms.
As we know, startups and their boards can grow quite fast. Sometimes, they begin with one person and before long, several others come into the mix.
Ultimately though, money, to pay for expert advice and guidance, will always be an issue.
That’s why it’s essential to know how much you should pay board members ahead of time, specifically for a company of your size.
What do startup board members get paid?
First off, it’s not a given that startup board members get paid money. Many don’t, and the same goes for other advisors, investors, or voluntary mentors whose values align with the company’s mission statement.
When payment is on the table, this is the usual trend:
- At the start, it’s equity (shares) only.
- As time goes on, equity percentages will decrease as cash payments begin – usually from the low 1,000s up to 10,000 a year.
Take the above as a “rule of thumb”.
It’s complicated to generalise across thousands of startups in multiple countries.
Every situation will be different, but the underlying theme is that, over time, equity payments will partially give way to cash compensation.
What you read below is based on that general trend, so keep in mind that there will always be variance depending on the type of company, the investors it finds, the speed at which it grows, and the country it operates in.
Phase 1 – shares for startup board members
When a startup is in its infancy, any payments to board members will usually be in the form of stock options or shares.
This makes sense, given the people you’d expect to find on a startup board at this time:
- Owners/founders and CEOs, who will naturally have a personal investment in the company.
- Investor directors – who have made funding available for the company’s growth and would expect some say in how it’s run.
The percentage of equity can vary. It could be as low as 0.5% and as high as 3%.
If the business is not well-funded, the rate will be higher. If it is well-funded, the rate is lower.
Ultimately, the percentage figure will decrease as the company attracts more funding and goes through standard dilution.
Startup board members and expenses
Although cash compensation is never likely to appear in its own right at this stage, it’s almost universal to compensate board members for general expenses – no matter what.
For example, board members should expect reimbursement for transport and accommodation when acting in an official board member capacity.
If you’re working with, or have founded a startup, this might be a deciding factor. You may not want to spend money on a board member who lives far away at this point.
Phase 2 – cash for startup board members
Cash compensation begins to creep in as equity decreases, but its impact varies depending on the director in question.
- Investor directors and founders/owners may get less or nothing because they usually already have significant equity.
- Independent directors are far more likely to get cash compensation if and when they come on board.
Remember, though, when it comes to startups, cash compensation for any board member will be considerably lower than what’s available at a well-established company.
What level of compensation should startup board members receive?
It will depend on the following:
- How well-established they are. More ‘prestige’ will generally cause a higher price tag.
- How committed they are to the organisation. If they can only promise minimal input, their compensation will be lower. If they promise to be full-time flag-bearers, it will be higher.
So how much are we talking?
Again, this can vary and usually depend on how well-funded the organisation is and how close it is to any initial public offering (IPO). Still, in general, compensation is broken down into the following:
- Per-meeting fees, which occur independently of reimbursement for travel or accommodation. Usually, these fees range from $1,500 to $3,000 per meeting.
- A ‘retainer’ fee acts as an incentive for the board member to continue with the startup. Typically, these range from $5,000-$10,000.
- A bonus. It doesn’t always happen, but if it does, the company will tie it to any bonus the CEO gets.
The above is often in addition to a share of equity, but this share will be lower than previously mentioned – often only up to 0.5%.
Equity first and cash follows
For startup boards, the rule of thumb is ‘equity first, cash follows’.
There are ballpark figures for both types of compensation, but that doesn’t mean you shouldn’t think hard about your company – what it’s looking for from a board … and what it can afford.
Further reading
Read more: Equity rates and how they evolve
Watch the video below
While most startups don’t have boards, successful ones will go on to develop boards. William McQuillan, a founding partner at Frontline Ventures, says the most critical things board members should bring to the table of a startup is their “knowledge, experience and connections”.