Paying the Board

Bernie Kliska
Bernie Kliska

A board of directors can help your company set long range goals as well as address pressing business issues.  To get the most value from a board, they should be compensated fairly for their time and related expenses.  It is recommended that a board should meet at least four times a year and careful thought should be given to their advice.

Some sort of an honorarium is usual for board members.  It can range from $250 to $5000 (or more) per meeting.  The level and type of compensation depends on the size and type of the corporation.  One possible way to figure compensation for a director is to take the top salary of the company’s CEO and apply the following formula: divide the total compensation of the CEO by 2000 hours.  Multiply the results by about 50 hours, which represents four full day meetings, plus some preparation and telephone time.

The key issue to be considered is the extent to which the director adds substance to the family business.  If there is going to be pay for board members, they should be people who add more value than they cost.  Family members who serve by birthright rarely provide real value as directors unless they have the qualifications to be selected as board members for other businesses.

Typically, indemnifying directors from legal liability is sufficient to attract qualified candidates, although some companies buy officer and director’s liability insurance as added protection.  For emergency meetings, it is a good idea to pay extra to enhance the director’s willingness to rearrange his or her busy schedule.

Your respect for your director’s involvement should be reflected in the fairness of his or her compensation.

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