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Survey of compensation used for Board of Directors and Board of Advisors. Sample is for early and growth stage technology companies.

Survey of compensation used for Board of Directors and Board of Advisors. Sample is for early and growth stage technology companies.

Published in Business , Economy & Finance
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  • 1. Board Compensation Guide Directors & Advisors 2012
  • 2. Purpose of this document:To provide guidance to early stage technologycompanies for determining:1. If you need a Board of Advisors (BoA) or Board of Directors (BoD)2. How a BoA or BoD is typically compensated using real-world examples.Contents:Why have a Board? (slides 3-6)How much? (slides 7-8)Examples and Resources: (slides 9-14)
  • 3. Purpose of a Board of AdvisorsThese individuals are usually industry experts who provideexpertise that is complimentary to your team. Typically theywould have technical expertise: e.g., a physician for a medicaldevice company, or a senior programmer for an internet start-up.Purpose of a Board of DirectorsTo provide guidance and oversight to the company as well as beaccountable for governance and fiduciary responsibility: e.g.,experienced executives, and/or your investors.In the simplest case, a founder who incorporates his/hercompany can function as President, Board, and Employee. Allpriorities are in alignment, but it‟s hard to do it all yourself.
  • 4. Do you need a Board of Advisors?This is often free advice from industryexperts. Everyone in a technologycompany should seriously consider aBoard of Advisors and/or a Mentor.For early stage companies, this isoften an informal arrangement. Youmay wish to offer a Limitation ofLiability agreement, or they may askfor one.
  • 5. Do you need a Board of Directors?This depends on the stage of your company.Start-up: Probably not. You have no product, you have nocustomers and you have no investors. Remember, a BoD can firethe CEO-Founder (you), but a BoA can‟t.External Investment: Maybe. With increasing investment there isincreasing chance that an investor will demand a BoD position as acondition. They want to make sure you are meeting your objectivesand legal requirements.Commercial Phase: Almost certainly. We assume you have income,debts, customers, competitors, investors etc. It can be comforting toknow you have a BoD helping to make sure you have not missedanything.
  • 6. Board Compensation: How Much $$$$$?The variables include:1. Stage of the company2. Ability to pay3. Private or Public4. Director Profile (Investor vs. Expert vs. Reputation)
  • 7. Stage of the company: Start-up/External InvestmentFounder(s): $0. When the company is founded, you are probably the onlydirector, and you are compensated $0 for your position as a director (you havefounder‟s shares right?).Internal Director(s): $0. (e.g. significant investor) who demands a BoD positionis compensated $0 as a director. They probably just bought 10-30% of yourcompany: that is their compensation.External Director(s): $0. You don‟t want one. If they are willing to do it for freebecause they love your company, maybe. Remember, a BoD can fire the CEO-Founder (you). This is one way many founders find themselves removed fromtheir companies.
  • 8. Stage of the company: Commercial1. Now you have potential liability, and so do the directors. You may be asked to obtain Directors and Offices liability (D&O) insurance.2. Directors and Advisors will likely want financial compensation in the form of expenses, fees, equity, or some combination.3. The following pages give real-world examples (and opinions) of what the compensation packages are like.SUMMARY:Start-up (pre-revenue) = $0Early Commercial = 0.25% equity/year, limited expensesCommercial/Public = Retainer, meeting fees, committee fees, expenses, options.Meetings fees are decreasing due to increased use of ‘virtual’ meetings.
  • 9. FeldThoughtsSummary: 0.25% per year per director for a four year term (total 1%). If theBoard member wishes to invest further (cash), that investment is handledseparately and like any other investor. No expenses paid until the company isin revenue.QuoraSummary: Hired senior executive compensation. CTO 3%, COO 0%,VP 1 – 3%, Director 0.25 – 1%. Each of these examples includes a hyperlink to the original source
  • 10. Angel BlogSummary: Stated in this blog, an “…outside director might be 1.5 to2.5% of the outstanding shares, and active Chairman might be 5 to 6%of the outstanding shares depending on the amount of additional timecontribution…”.Consulting Company ReportSummary: In addition to an average $15,300 annual retainer fee,directors receive an average fee of $1,100 a meeting. They generallyattend six meetings and three subcommittee meetings, at $750 apiece,each year, according to the Coopers & Lybrand study. Total average payis $24,150. "Some time ago, it may have been viewed as a friendlyclub," Lew said. However, it is not that way today. The economic andlegal environments today make it necessary for every director to preparewell, to ask the right questions, to be aware." Each of these examples includes a hyperlink to the original source
  • 11. Beginners InvestingTiffany & Company, for example, pays directors an annual retainer of$46,500, an additional annual retainer of $2,500 if the director is also achairperson of a committee, a per-meeting-attended fee of $2,000 formeetings attended in person, a $500 fee for each meeting attended viatelephone, stock options, and retirement benefits.Microsoft Business ResourceSummary: Size, frequency, and other variables dictate how much you payyour board of directors. Look to pay a „per meeting‟ fee of several hundreddollars plus an annual retainer. Rule of thumb: The bigger the company, thegreater the importance of a board members role so youll have to pay themmore. Even relatively small companies which ask a fair amount of their boardmembers can expect to pay upwards of $30,000 a year per member. Each of these examples includes a hyperlink to the original source
  • 12. Industry Week articleSummary: The study showed that six companies offered their full board a cashbonus based on company performance, and the practice of establishing stockownership guidelines for directors is growing.ForbesSummary: Very nice info-graphic of CEO compensation packages forcomparison. Note that this interactive graphic rendered better in some browsersthan others. Each of these examples includes a hyperlink to the original source
  • 13. Public Company (in revenue) Board CompensationSummary: Cash retainer, plus meetings fees, committee fees, in some cases equityand performance based compensation. There is a wide range of compensation in thissector depending on stage and success of the public company.Bank of Montreal Board of Directors CompensationSummary: >six-figure board positions.Fortune 500 CompaniesSummary: companies with revenues over $10 billion, the median director totalcompensation increased by 1% over last year to $216,186. Two notable trends:- The prevalence of stock options is decreasing- The prevalence of meeting fees is slightly decreasing as communications becomeincreasingly sophisticated and the definition of a "meeting" begins to blur. Each of these examples includes a hyperlink to the original source
  • 14. Other ResourcesArticles of Incorporation Resource for your Board (Appendix A, Table 1).Maintaining your BC Company Documents for for official documents in BC.BC Laws Free public access to the current laws of British Columbia.Business Law for Technology Companies U Calgary.Corporate Registry Information Packages (BC).Setting up a Board of Directors Useful resource created by David Rowat.