Not Paying Your Board? You're Sabotaging Your Success
Slashing the compensation where it really matters can backfire
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.