How Should I Compensate an Advisory Board?

Depending on the stage of development and the type of business, there are different ways of compensating your advisory board. So let's get practical.

First, a few assumptions: you are a

startup and there have been relatively few stock transactions, but the stock should have value in the future, either through an IPO or merger. In this case, equity compensation is definitely the way to go. Equity compensation should be structured to avoid current taxable income to the recipient. This can be accomplished through either stock options or restricted stock. Check with your securities counsel or the AllBusiness site for example agreements.

How much you should compensate your advisory board depends on their level of involvement and the total number of advisors you intend to have. For a casual advisory relationship with few face-to-face meetings, a nominal 10,000 shares or options (assuming your company has 10,000,000 issued and outstanding shares of stock) is fair. The compensation amount could range up to 25,000 shares or options for a more-involved advisor, all the way up to 100,000 shares or options perhaps if the individual is devoting significant time — meeting with members of your company several times a week, or actively helping to develop a major business opportunity.