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We are looking to compensate our Board of Advisers based on company performance. We are a private company, no ESOP's or similar plans. Ideas

Answers

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

Well, the two things that boards, be they "actual" or advisory boards, use for compensation are stock and cash. Sounds like you have no stock plan, so toss that one. There is straight cash and there are variations on cash, such as performance-bonuses, profit-sharing, etc..

For straight cash, you can try a fee per month or other periodicity. As for how much, well, it depends on how much they need as a motivator. If they are already on a lot of boards you will probably require more cash b/c there is less cache to your board if they are on 4 others at the same time.

For variations, try company performance bonuses, milestones, share of profits, or how much time they actually spend as means for calculating their bonus. Think of it like you would any other employee's bonus and get creative. If they don't perform, they should not get paid. And you certainly want to incent them to perform. As for how much, same as above: depends on what you need to motivate them. And don't get hung up on paying all advisors the same amount because, just as with employees, different folks will contribute different value.

Achaessa James
Title: Product Manager
Company: National Center for Employee Ownership
(Product Manager, National Center for Employee Ownership) |

Since most start ups have limited liquid assets, and prefer using those that they do have in building the business, stock options are a commonly used tool to compensate directors and advisors, and often professional service providers as well. Stock options also have the benefit of generating cash flow for the company, since the recipient will have to pay an exercise price once the option has vested, and will also provide a means for the recipient to participate in the company's growth and have skin in the game in a way that cash remuneration does not. If you have not established an option plan simply because of the legal fees involved, there are many reputable law firms that will create a plan and ancillary documents for a reasonable sum, and will on occasion even waive all or part of those fees for warrants or options issued to the firm.

If you do decide to explore using stock compensation, I recommend a book entitled "The Decision-Maker's Guide to Equity Compensation" published by the National Center for Employee Ownership. (Disclaimer - I am an NCEO employee and subject matter expert)

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