How much should you pay board members and advisors to your company? If your board members are VC investors, the answer is simple: nothing. They are on your board to help maximize the value of your company and their investment. If you have a VC that wants to invest and wants to be paid (in either cash or equity) for his / her board service, then find another VC; these folks aren’t legit.
One caveat to this: Venture Partners. If you read our post on different roles and titles in the VC world, you know that Venture Partners can have a range of compensation packages depending on how the VC firm they are a part of is set up. There are some firms that, in exchange for funding, want the company to issue their venture partner on the deal some piece of equity. This is simply because the venture partner doesn’t have a piece of the fund carry and therefore they want him to have some skin in the game. This is rare, but not unheard of.
As for outside board members, generally you don’t see cash comp given in startups, but you do see equity grants. A normal range for a good outside board member is an option grant worth 0.25-1.0% of the company, normally vested over 2 to 4 years depending on desired length of service.
When looking at Advisory board compensation, it ranges from nothing to small grants (usually less than 0.1% of the company.) Cash comp is not appropriate.
In all cases you should be willing to cover reasonable expenses for board member and advisors to come to your meetings if they have to travel. They key word is reasonable – you get to define this. For example, I once sat on a board where the CEO insisted that she choose the hotel we stay at and book the reservation (fortunately she had frugal but good taste.)
If you really want to drill down into the bowels of board compensation, check out Brad’s prior posts on the subject:
Compensation of Outside Board Members