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Men in Suits

How much do directors of a startup earn?

"Do startup board members get paid?" is a popular question for both directors and firms.

Startups and their boards can expand quickly. Sometimes it starts with one person and quickly expands to include several more.

Money, in some shape or another, will always be a concern. That is why, for a firm of your size, knowing how much you should pay board members ahead of time is critical.

How much do startup board members make?

To begin with, startup board members are not automatically compensated. Many do not, and other advisers, investors, or volunteer mentors whose ideals coincide with the company's mission statement are no exception.

When money is involved, the conventional pattern is as follows: At first, just equity (shares) are exchanged.

Once cash payments begin, equity percentages will decline over time, typically from the low $1,000s to $10,000 each year.

Take the preceding as a "rule of thumb" only. It is difficult to generalise across thousands of companies in many nations. Every circumstance is unique, but the fundamental idea is that stock payments will gradually give way to cash remuneration.

What follows is based on that general pattern; however, keep in mind that there will always be variation depending on the sort of firm, the investors it attracts, the rate at which it expands, and the country in which it operates.

Shares in Phase 1

While a business is in its early stages, any compensation to board members is often in the form of stock options or shares.

Given the folks you'd expect to see on a startup board at this time, this makes sense:

Owners/founders and CEOs, who will have a vested interest in the company.

Investor directors - individuals who have provided finance for the company's growth and would like some say in how it is run.

The equity percentage can fluctuate. It could be as little as 0.5% or as much as 3%. The rate will be higher if the business is underfunded. The rate is lower if it is well-funded.

The percentage proportion will eventually decline when the company raises more funds and goes through typical dilution.

Board members and startup expenditures

Although cash compensation is unlikely to exist in and of itself at this time, it is practically universal to reimburse board members for general expenses regardless of the circumstances.

Board members, for example, might expect reimbursement for transportation and lodging when serving on the board in an official role.

This could be a deciding factor if you work with or have created a business. At this point, you may not want to spend money on a board member who lives far away.

Phase 2 - monetary

As equity declines, cash pay begins to seep in, although its influence varies depending on the director in issue.

Because they typically have large ownership, investor directors and founders/owners may receive little or nothing.

Independent directors are significantly more likely to get monetary compensation if and when they are appointed.

But, keep in mind that with a startup, monetary pay for any board member would be far lower than in a well-established company.

What should the compensation for startup board members be?

It will be determined by the following factors:

How long they've been in business. Greater prestige usually results in a higher price.

Their dedication to the organisation. If they can only promise modest input, their pay will be reduced. It will be higher if they commit to be full-time flag bearers.

So, how much are we discussing?

Again, this varies and is usually determined by how well-funded the organisation is and how close it is to a public offering (IPO). However, compensation is divided into the following categories:

Meeting fees that arise irrespective of reimbursement for travel or lodging. These fees often run from $1,500 to $3,000 each meeting.

A'retainer' fee incentivizes the board member to stay with the startup. They typically run between $5,000 and $10,000.

An added benefit. It doesn't always happen, but if it does, the corporation will link it to the CEO's bonus.

The foregoing is frequently in addition to a share of stock, but this share will be lower than previously stated - typically as low as 0.5%.

Equity comes first, then cash

The rule of thumb for startup boards is 'equity first, cash second'.

There are estimated amounts for both sorts of remuneration, but that doesn't mean you shouldn't think carefully about your company's needs in a board member and what it can afford.

Our Directors’ Institute- World council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out in an efficient manner helping you to make a significant contribution to the board and raise corporate governance standards within the organization.

Our ESG Expert certification will help you to amplify your understanding of corporate governance in a detailed manner paving a way for you to become a globally recognized ESG leader.

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