Advisory Board Compensation
Advisory board members use their experience and knowledge to help you grow their business. Even though resources are scarce, you'll need to compensate them for their time. But what's the going rate for an advisory board these days?
How much would it be worth to have a group of business experts put their heads together and help you chart a course for your company?
Now imagine having that same group of experts gather on a monthly basis to guide you through the pitfalls and opportunities you face as a business leader. Sounds pretty valuable, doesn't it?
That's exactly the role an advisory board plays in a small business. Proven leaders offer their experience, knowledge, and connections to help someone else achieve targeted goals and objectives. But unfortunately, some business owners fail to recognize the value of their advisory board and neglect properly compensating advisory board members for their service.
There are various reasons why someone might be willing to join your advisory board, most of which have no cash value. As a rule, however, you should provide both financial and non-financials forms of compensation to acknowledge the important role advisors play in your business.
Advisory board members receive several non-cash benefits simply by participating on the board. Their motivation for joining the board may be to advance the industry, engage in a creative exchange of ideas, or to expand their business network. In some scenarios, advisors are primarily interested in building their resumes or being recognized as leaders in their field of expertise.
To sweeten the deal, you can augment the inherent benefits of advisory board participation with non-cash compensation like meals and cocktail parties. A nice Christmas gift can also be a way to express your appreciation.
There several types of financial compensation for advisors in a for-profit business venture. One of the most common ways to compensate advisors is by paying an honorarium on a per-meeting basis. The amount paid in honorariums varies according to the size of the organization, but it should be indexed to the amount of the time that is required. Reimbursement for meeting-related expenses is also standard compensation for board members.
Startups often compensate advisors with equity in the company. These are well-documented and formal arrangements in which the advisor lends his credibility and expertise to the organization in exchange for higher-than-normal level of compensation.
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