March 04, 2015

How Much Should You Pay an Advisor For Your Company?

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How much to pay an advisor or board member ranges significantly, but in large part is based on the size of your company and how badly you want to land that individual to advise your company. Most companies use advisors on a quarterly basis, as well as select touchpoints in between meetings on specific topics.

Keep in mind, compensation can be very simple and often times not as significant as most think, as many executives are just as interested in the intellectual stimulation as much as the compensation. For “big name” executives, they will always want more significant compensation, but most executives want the “experience” as much as the small amount of cash or equity they will be receiving.

Here are some ranges based on sizes and stages of companies:

Startups – Almost always equity compensation. Companies often set aside 2-6% of the equity, shared amongst key board members who can help them make inroads in specific ways and scale the business.

Small Private Companies – Either a per-meeting fee, an annual retainer, and/or a small equity grant. Average annual compensation per advisor generally ranges from $1,000-$6,000.

Middle-Large Private Companies – Either a per-meeting fee and/or an annual retainer. Average annual compensation per advisor generally ranges from $12,000-$26,000.

Public Companies – Includes board retainer, fees and stock options. Average annual compensation per advisor generally ranges from $51,000-$146,000.

So what’s the easiest way to decide? If your company has the cash, the simplest way is often to pay an advisor a per-meeting fee. These meetings (often 60-90 minutes if with one person, 90-180 minutes if with multiple advisors) can be done quarterly and serve to bring the advisor up to speed and ask for their feedback and insights. It is often implied that limited correspondence between meetings is acceptable and does not need to be compensated. It is advantageous to do these on a set schedule such as quarterly, instead of of ad-hoc, as it will help you and your advisors with preparation.

If your company is a startup and/or strapped for cash, 1/2 of 1% is a good starting point to offer one advisor. If your advisor has the right insights and connections, this will be the “best money” you have ever spent. Equity also gives the advisor a real vested interest in the success of the business and often times leads to even more doors being opened.

In the end, offer whatever you are comfortable with and whatever gets you good value for what you are offering. With each advisor you should have specific areas where you think they can help you, and what you pay that person should be a tiny fraction of that value. Regardless of how little or how much you offer, if you use advisors the right way it will be an incredible source of talent that has the ability to help your company achieve the next level of success.

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