How much should you pay an advisor or board member in your company? This is one of the most significant questions which new CEO's and companies must deal with. Board members and advisors can be a big help in getting your company to run smoothly. However, it is just as important to provide value when it comes to compensation — paying too little can limit the quality of talent looking to work with your startup and paying too much could lead to problems for your company in the long run.
So...How much should you pay an advisor for your company?
This question comes up repeatedly. The short answer is "it depends." It depends on the size of the company, what type of advisor you need, and how much time they're going to be spending with you. In this article we'll talk about some of the basics, but remember that compensation plans should be tailored to the individual environment.
The question is how much? There are no hard and fast rules when it comes to compensation, even though it may seem that most advisors charge the same amount. Here we'll break it down my company stage and size to help provide additional guidance.
And remember - if you're looking for an easy and cost efficient way to source advisors for your business - AdvisoryCloud is the leading platform for building and managing advisory boards.
How Much Should You Pay Startup Advisors?
Startup advisors are almost always paid with equity compensation. 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.
Startup advisors typically don't want to work full-time for an early-stage startup, so they're compensated with a small percentage of the company's equity as part of their overall compensation package. The amount varies based on how much value they bring to the company, but it's usually between 2-6%.
For example, let's say you're building a consumer electronics company and need help getting into retail stores like Best Buy or Target. You might hire someone from those stores as an advisor who could give you access to their buyers and help you understand how those retailers work. This person might be able to get you appointments with key decision makers at those stores because he has relationships with them from his past work experience
There are also multiple ways that advisors work with startups and a variety of ways they can be paid - however, the most common compensation models are:
A per-meeting fee. Advisors charge an annual retainer and meet with the company 1-3 times per year. The average annual compensation per advisor generally ranges from $1,000-$6,000.
Equity grant. Advisors typically receive an equity grant that vests over time (usually two years). This is a common model for professional services firms (lawyers and accountants) but can be used by anyone who is not providing professional services on behalf of the company.
Employee or contractor. Many advisors are employees or contractors who receive a salary or hourly wage from their employer (the owner). Some advisors are paid based on achieving specific goals such as revenue targets or customer acquisition rates.
It's also important to understand the characteristics of a successful advisor.
How much should you pay advisors at a small private company?
Usually at smaller private companies a mix of cash and stock options (usually restricted). Cash is paid out on an annual basis, while stock options are generally awarded after a vesting period of 1-3 years.
Advice for private companies with a small number of investors, typically less than 10.
The amount you should pay an advisor depends on the size of your company and your goals. If you're just starting out, you could probably get by with a few hundred dollars per meeting. But if you have more money at stake and need more frequent advice, consider paying more per meeting or hiring an advisor on retainer.
Small Private Companies – Either a per-meeting fee, an annual retainer, and/or a small equity grant. Average annual compensation per advisor generally ranges from $1,000-$6,000. Other things to keep in mind here:Advisor vs. Consultant: Who drives the most business growth?
How much should you pay advisors at medium to large private companies?
There is no easy answer to this question. Many advisors charge a flat fee for their services, but some advisors prefer an annual retainer. The range of fees and retainers is wide depending on the size of the company, the level of support needed, and other factors.
Below are some general rules of thumb:
Middle-Large Private Companies – Either a per-meeting fee and/or an annual retainer. Average annual compensation per advisor generally ranges from $12,000-$26,000. It's also key to understand the key differences between an advisory board and board of directors.
How much do large public company board members make?
A director at a Fortune 500 company might make $200,000 or more in cash compensation per year. They also get a lot of stock options that can bring in millions more down the line if the company does well. That's on top of whatever fees they earn for being on other boards or doing other work for the firm (if applicable).
A director at a Fortune 500 company might make $200,000 or more in cash compensation per year. They also get a lot of stock options that can bring in millions more down the line if the company does well. That's on top of whatever fees they earn for being on other boards or doing other work for the firm (if applicable).
"The standard fee structure is $50,000 a year," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware and chairman of the governance committee at the board of directors for TransUnion (TU).
A survey by the Wall Street Journal found that median pay for directors at large public companies was $241,000 in 2011. That's up from $194,000 in 2009 but down from $259,000 in 2008.
In Conclusion
Ultimately, every company and situation is unique, but I wanted to highlight a few guidelines which have worked well for me over the years. Additionally, remember that your success will ultimately hinge upon your ability to hire the right advisors, so you want to work with individuals who share your vision. Remember though, in the end it is all about finding the right fit — never be afraid to ask someone if they are willing to take their time away from another company or another project in order to join your team.
