Startup Board Member Compensation - Part 1

Overview of the market

So, you’ve been recommended to become a startup board member. While congratulations are definitely in order for the trust and recognition you’re being shown, there are quite a few considerations to account for. Beyond the fascinating and challenging experience that it represents, not least of those considerations is the compensation you might receive.

While the success of any company is in large part driven by its board of directors, startups rely on their boards significantly more than larger companies. Board members aren’t just the first point of contact for the stakeholders. They hold the true authority and therefore responsibility of running the company. Their main role is to act in its best interest and to ensure not merely its survival but its successful development. Under Swiss law, the board members of a company can be held personally liable for certain damages if the company fails to meet its obligations, including the payment of social charges. A nomination to become a board member must therefore not be taken lightly.

Running a startup is unlike running any other company. While in Switzerland the legal framework for a startup is identical to that under which any other company is governed, the reality of managing one is very different. The fast pace at which startups evolve puts a bigger strain on the board members’ availability. Meetings are likely to be held more frequently, especially if issues arise — and they most likely will. The impact of strategic decisions is harder to foresee yet manifests quickly, decisions often have to be based on limited data, and governance agility must be combined with the ability to maintain a clear focus. Roles frequently overlap, conflicts of interest arise, passions may run high, and the whole pursuit requires extensive governance knowledge, specific industry expertise, and an exceptional ability to communicate efficiently. The skill set required is unique, and it makes perfect sense for the ones providing it to be adequately compensated.

A review of the available literature paints a somewhat underwhelming picture in terms of board member compensation trends. As startups are private companies, there is no obligation for them to disclose any information about how their business is run. The data that is available, therefore, comes from companies that provide services to startups, such as payment or management platforms or law firms that specialize in this field. In addition, as the field is rather niche, studies aren’t frequently conducted on the matter.

Overall, there are three main approaches to board members’ compensation.

• Equity. This compensation type is chosen in the interest of preserving cash availability, which is always tight for young startups. The percentage of equity allocated to each board member may vary depending on their duties within the company, the startup funding stage and the industry in which the startup operates. It generally ranges between 1 and 5% pre-Series A and progressively declines with each new series, down to between 0.1 and 1.5%.

This approach is widely spread and recommended among startups, especially those in the early stages of their development (pre-seed and seed, up to Series A). While equity-heavy compensation models are more common in the United States, they are not always preferred in Switzerland.

• Cash. This form of compensation is usually introduced once the company has grown sufficiently. Initially, the board members are most likely to be compensated for each meeting they attend. In Switzerland, the amounts vary between 1000 CHF to 3000 CHF per meeting or between 150 to 300 CHF per hour. As the company grows, it is likely to shift towards providing board members with an annual retainer of? 10 000 CHF to 30 000 CHF, and a bonus scheme similar to that of the CEO.
• Mix of both equity and cash. This option is also more characteristic for startups that have grown enough to have a stable cash flow, with the initial compensation for board members being in equity and shifting to retainers or per-meeting cash payments over time.

Overall, a startup board member may typically expect to receive the equivalent of 20 000 to 40 000 CHF per year in cash, equity or a mix of the two. Each compensation approach has its benefits and disadvantages, both for the company and for the board members themselves. In the upcoming articles, you will learn more about each of them.

Virginie Verdon, Managing Director , Startup Board Academy