looking forward
June 13, 2013

Tips for Private Company Board Member Compensation

Tyler A. Ridgeway, Director, Human Capital Resources

Tips for private company board member compensationIn most privately-held businesses, the level of board member risk is not as great as it would be in a public company. As a result, private company board members usually receive lower retainers than public company directors do. However, there is still some level of risk and an expected time commitment for which board members must be compensated. You may also be looking to your board members for strategic guidance and advice, which can result in activities that generate a lot of profit for your business. Therefore, your board members deserve to be adequately compensated for their contributions.

Board member compensation should take into account roles, responsibilities, time commitment, seniority/experience level, geographic location and committee involvement. While there are no specific compensation guidelines that apply to all businesses, at a minimum you will want to consider:

  1. How many times per year do you meet? Most companies base a yearly retainer on the number of meetings. Each meeting might pay anywhere from $500 to $5,000. Accordingly, if you have four company board meetings each year, you might be looking at an annual retainer of $2,000 to $20,000 per board member.
  2. Is committee work involved? Board members usually receive additional compensation for service on committees.
  3. What is your company size? Larger companies generally provide higher compensation to their board members.
  4. Do you have business challenges that necessitate higher-level experience? Individuals with deep expertise generally command higher compensation. For instance, we recently ran a search for a  business that was seeking a Fortune 500 executive to join their board. The business was prepared to offer higher compensation to gain his strategic advisory services.
  5. Are there other methods of compensation you can offer besides cash? Some businesses get creative, offering company stock, vacation trip reimbursement, or vehicle allotments. We even have a client that created a pension plan for board members that vests after five years of board service.

While fairly compensating your board members for their service is essential, data have shown that paying more money does not necessarily lead to better advice. We have found that the most successful board members are those who have a passion to serve (i.e., they’re not just in it for the money). Look for individuals who want to make a positive impact on your business and demonstrate a vested interest in your long-term success.

Compensation for family board members

In a family-owned business, determining how to compensate family board members can be tricky. As a general rule, we advise companies to treat each board member the same. After all, if you are on the board, it means you are qualified and you are being asked for your candid and strategic advice, whether you are a family member or not.

However, we work with many business owners who feel that only outside directors should receive compensation. They believe that as a family member, it is your duty to serve the company and you have an inherent, vested interest in the outcome.

Keep in mind, though, that family members who are paid employees of the company do not usually receive additional compensation for their board service.

Tyler A. Ridgeway can be reached at tridgeway@kmco.com or 215.441.4600.

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