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BUILDING A BOARD OF ADVISERS

Compensating an Advisory Board

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Whether as a short-term, single-issue think tank or as a long-term panel of counselors, advisory boards offer companies valuable insights. But how (and how much) do you pay an advisory board?

  • A rough rule of thumb is to pay advisory board members about as much as you do your corporate directors, perhaps a bit less. Susan Stautberg, head of the Partner.com advisory board service in New York, sees payments ranging from "about $25,000 per year at big banks to $1,000 per meeting and stock options at young firms." The average seems to be $1,000 to $4,000 per meeting, plus expenses, for an average of four meetings a year.

  • Still, when it comes to advisory board members, you get what you pay for, says Ed Merino, honcho at Office of the Chairman in California. At the tech firms Merino works with, though, hard advice is often paid with that softest of currencies, stock options. "A lot of times they don't have cash to get world-class talent. At some tech companies, advisory board members get up to three-fourths of 1% of equity."

    These directors generally cannot exercise their options for a long time -- 3, 5, even 10 years. Advisory board members have less direct impact on share price than corporate board members, so "it may take years to create value."

  • Most advisory board members are paid on a per-meeting basis, but Merino encourages advisory directors to be paid more like corporate directors, with retainers, especially if you pay with "equity, which takes the place of a meeting fee." There's logic behind this idea -- the faster pace of business today means that convening an advisory board meeting every few months could be too little, too late. Advisory directors now are more often "on call, or on the phone," says Merino, so a retainer makes more sense.

Copyright © 2000 Ralph Ward's Boardroom INSIDER

Last updated: Jul 1, 2000




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