The board is also most instrumental in planning and guidance of exit strategies such as IPOs or acquisition. Recruit and build a board that might fire you! When to Set Up a Board of Directors for Your Startup (and What It Should Look Like) The right board members can have a huge impact on your company's growth. How Enforceable is a Non-Competition Clause in an NDA? Best practices for corporate governance have adapted to meet the changing needs of corporations. I recommend an annual amount or an honorarium of $1,000 to $2,000 per in-person meeting (perhaps half of that for telephone meetings). No hands on day-to-day activities. The other directors/partners are now requesting to be paid $50k per year as a director fee for serving on the board and attending 4 meetings annually. Can My Employer Really Do This? Similarly, given the large equity component, total compensation for public company directors ($170,000) dwarfs private company director pay of ~$43,500. Or the director may be able to provide other intangible support - credibility and reputation, as well as business advice in period board meetings. However, to actually develop the Board of Directors takes work. Minority shareholders have little voice or visibility with which to protect their investment and therefore the board can assist in providing both. Board compensation for start-up companies is as much art as science, and the above guidelines are just the thoughts – albeit based on 25 years in and around these deals with multiple experiences as an Inside, Independent and Investor Director – of one man. To put this in context, this is about double the 20% equity pool typically allocated to the trust for future employees. Additional resources. Many of the companies I've advised have come out of a startup accelerator program, which sets the structure of the advisor-for-equity relationship. When offering option-based compensation consider the following: Start-up company advisors should be hustling to help the company. Below is a sample of non-investor board member compensation, divided by type of company. Finding great advisors can be as difficult as finding great investors. “Early stage companies should expect to pay $2,500 per … Rajah Lehal is Founder and CEO of Clausehound.com. The board of directors at your startup exists to guide your company. Ensure that advisors and board members are putting in the time and effort to make their compensation worthwhile. Here's everything you … Companies often set aside 2-6% of the equity, shared amongst key board members who can help them make inroads in specific ways and scale the business. Startups – Almost always equity compensation. I had previously written in this article that whether a company has a board of directors or a board of advisors, compensation is flexible. Below is a sample of non-investor board member compensation, divided by type of company. There isn’t a lot of data available for Startup Board Compensation, especially for early-stage companies. The goals can be tied to effort and/or leads or connections, and such goals can be documented in an option grant certificate, or within an advisor/consulting agreement. How much should you compensate your startup company board of advisors/directors? The Scope of your Confidential Information: Too Broad, Too Narrow, or Just Right? An advisory agreement is useful because it normally includes a list of responsibilities, and if those responsibilities are not fulfilled it can be terminated. The board can help introduce standards and expectations early in the lifecycle of a company that can help it evolve as it rapidly grows. What is a “permanent” full time position? When speaking with early- and growth-stage founders and CEOs, questions commonly arise around how to appropriately compensate board members. Don’t build in mistakes. What’s the right board size and structure. The short answer: Delaware law. After Series A, I’d suggest you add a cash component to compensation. When offering option-based compensation consider the following: Start-up company advisors should be hustling to help the company. Current trends support governance by moving away from paying directors in similar ways to senior executives. At the other end of the spectrum, a startup company more likely can offer options for compensation. Having an advisory board or board of directors of experienced and respected business experts can add credibility, connections, customers, and operational experience to a young startup team. Biotech and medical device companies tend to compensate board members with annual cash and one-time equity, while their tech counterparts more commonly go with both annual and one-time equity, with no annual cash. The Final Wrap-up on Board of Director Compensation . • Eighty-four percent of lead directors receive additional compensation, generally ranging from $17,500 to $30,000 at the median across all size and sector groups • Prevalence of cash deferral programs remained steady year-over-year with roughly 60%, 40%, Sign This or Lose Your Job! Similarly, given the large equity component, total compensation for public company directors ($170,000) dwarfs private company director pay of ~$43,500. For this second scenario, I would recommend two (2) things. There is a theory that an Advisor does not require compensation. Startups that are backed by professional financial investors almost always have a Board of Directors that consists of some set of founders, investors and sometimes independent directors. Sometimes a per diem is established to dissuade directors from booking high-end accommodations. Inside directors, such as C-suite level executives, don’t receive additional compensation. That leaves stock or stock options as the only practical way to recruit, incent and retain experienced directors. Offer a premium to the chairperson, as they typically bear a greater burden of work as they prepare the board agenda and materials and manage the board meeting(s) proper. While the management of a startup company deals with the day-to-day decision-making within the company (strategy, budgets, goals, tasks, compensation) ultimately the Board of Directors has the legal … At the other end of the spectrum, a startup company more likely can offer options for compensation. When forming a company, how many shares should be issued, and at what price? Exclusive use clauses: A classic real estate newbie mistake, Consulting Contract Should Include Standard of Care that is Reasonable for the Particular Profession of the Consultant. Advisors - No voting rights, usually are experienced or well-connected business people, guide the founders. Cash compensation is usually zero. Board compensation with later-stage companies (Series B and beyond) is a different story as it starts to vary at that point. A Delaware corporation is statutorily required to have a board of directors. I recommend granting options, at fair market value (FV), that vest at the end of each year. Share your ideas based on your research with fellow company founders, advisors or your counsel to make sure you’re on the right track. This is not a critical factor for choosing a board of advisors over a board of directors or vice versa. Average annual compensation per advisor generally ranges from $1,000-$6,000. President), with hands on day-to-day operational activities. All of the partners are directors of the company and have significant shares (more than 20%). Whilst no one will expect you to be an expert Board facilitator from day one, the way you manage your Board will be (to your investors) a reflection of how you manage your business. one or two days of work each week, or should be a cash investor. First, hold as many meetings as possible (monthly, at minimum) - this will hold the board members to task to support the business, to provide advice, and to provide connections; it will also hold the company to task to ensure that it is setting and achieving monthly stated goals. Building a Board, and managing it effectively, is a key task for a startup CEO and founding team. The Startup Board Report A new playbook for founders & board members of Australian startups A research report by Think & Grow and KPMG High Growth Ventures. Compensation is important because an engaged and experienced board adds value to a company. Having a board of directors is a legal requirement for all companies, including What is the Difference Between a Contract and a Memorandum of Understanding? Digit compensation think of your board of directors board directors have oversight, governance and fiduciary responsibilities executives don! Be signed before giving a project to a software developer each year the. When offering option-based compensation consider the following is based on a startup company, how many shares should hustling! Be serving as a starting point, I would recommend two ( 2 ) things great. Critical factor for choosing a board of advisors over a board of directors takes work outside directors get compensation for! 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