Board Compensation Public-Pre-IPO-Startup
Compensation for directors of large U.S. companies just passed a new threshold — $300,000 per year in total fees — up 3.5% according to a new study by Compensation Advisory Partners. Median pay for non-management partners is up from $290K last year. While large companies rely mainly on annual retainers (cash and equity) to compensate large company directors, according to the report, smaller public companies and startups have different structures and significantly lower compensation levels.
Large Company Board Comp vs. Small Public Companies and Startups
How does big company Board comp compare to independent directors for startups, early stage companies and smaller companies? According to Chris Thomajan, TechCXO’s Managing Partner in Boston, and author of Board of Directors Management Guide for Startups, startups and smaller companies compensation are considerably lower.
“Early stage companies should expect to pay $2,500 per meeting or $10,000 per year to your independent directors. That number increases the closer a company gets to an IPO and can be in the range of $30,000 per year for pre-public or public companies,” said Thomajan. “Distinctions are also made for the specific role of a director. The chairman of the board or someone with relevant scientific or financial expertise like an audit committee might be paid more than a regular director.
“Independent directors also expect to receive equity grants along with their cash compensation. The amount and frequency of such grants also varies by the stage of the company. However, an early stage company should expect to grant 0.1% to 0.25% of equity with a vesting period of 2 to 3 years. Additional annual grants are also expected,” Thomajan added.
Thomajan also said that unlike a company’s officers, such as a CEO, and their investors who sit on your board, independent directors are typically paid a combination of cash and equity for his/her services. There are several ways to structure the cash compensation, but in general, the director is either paid a flat fee per meeting or a flat fee per year (paid quarterly) that assumes a certain level of commitment.
He also said that while there is a cost to bringing on non-investor board members, the potential benefits far outweigh those costs.