My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

Leadership

Not Paying Your Board? You're Sabotaging Your Success

Slashing the compensation where it really matters can backfire
Not Paying Your Board? You're Sabotaging Your Success
Image credit: Shutterstock
Partner, Think and Grow
4 min read
Opinions expressed by Entrepreneur contributors are their own.

 

In pursuing success, start-up founders often cut corners.

Usually, that comes in the form of scrimping on spending. Cutting back on the fancy office chairs? Good idea. But slashing the compensation where it really matters can backfire.

Start-up founders spend so much time thinking about their boards, organizing them, getting the best talent. But they don’t spend anywhere near as much time thinking about how to pay them.

That’s a mistake. In the same way start-ups pay for great employees, they need to pay their board members too.

This is a huge problem, too. Research shows 50 per cent of Australian start-ups don’t pay their board members any remuneration, and 64 per cent say they don’t have any professional board members with a relevant qualification.

Those two findings are linked. Without any compensation or incentive, start-up founders can never hope to attract the best talent. Without that talent, how can they possibly expect to deliver world-class performance in a global market?

But finding the best and most qualified talent is only part of the equation:

Paying Board Members Ensures True Objectivity

In the same research, only 55 per cent of start-up founders said they would pick the same board if they could start over. Clearly, something is going wrong and they’re not getting the best advice. Paying board members (preferably in cash) ensures true, objective advice and buy-in.

Paying Board Members Attracts the Best Talent

Without compensation, hiring boards can be seen as an informal process. In fact, 65 per cent of boards don’t appoint members through a formal hiring process.

Instead, they’re sourced through personal and professional networks. While this might sometimes result in beneficial circumstances, it doesn’t create the most professional atmosphere. And considering 45 per cent of founders say they would choose their boards differently, it begs the question: what would the process look like with safeguards and governance?

Placing compensation in the equation ensures a much more formal, rigorous process that attempts to find the best person for the job.

Speaking of the Best Person for the Job

More than half of all boards (54 per cent) don’t approach recruitment by identifying a skillset or knowledge gap. That’s a huge blind-spot for start-ups, especially during a time when they need that expertise.

Being adequately remunerated helps focus the board composition on who the company needs, rather than who the company wants or simply happens to know. Compensation provides an incentive to truly seek the best in the market.

There are multiple reasons to pay your board members.

By compensating board members, start-ups ensure they add global experience in scaling earlier into the business process, and makes sure they think ahead of growing.

They save time by making sure they have the best possible people in the right positions straight away, and they create a culture of excellence to support the founders and CEO. Besides this, it also helps create a strong relationship between the founders and the board - something that’s crucial when companies truly start scaling.

Now, there are always caveats in this type of conversation. For instance, paying board members in cash is always preferable to stock to make sure the advice being given is purely objective. But what’s the right balance between cash and equity? That’s a question that every business will have to answer on their own.

The evidence, however, is fairly clear. Start-up founders should compensate their boards, and compensate them early. They’ll be gaining a competitive advantage if they do.

 

More from Entrepreneur

Corene Summers helps clients advancing their health, careers and lives overall through reducing stress, tension and optimizing sleep.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Starting, buying, or growing your small business shouldn’t be hard. Guidant Financial works to make financing easy for current and aspiring small business owners by providing custom funding solutions, financing education, and more.

Latest on Entrepreneur