Many early stage CEOs and board members have asked for some guidance regarding pay and time commitments for board members. Here is my best advice, based upon many boards and many years. Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service. The option price should be set by appraisal under IRS rule 409a, and certainly should be low enough to recognize that common stock options are not worth as much as preferred stock, given the many preferences of the latter. Further, the option should contain a special clause that accelerates vesting to 100% upon a change of control in the corporation, which aligns the board member with the best interests of the corporation itself. Otherwise, you might picture an event in which the sale of a company to be consummated a few months before full vesting could cause a board member to find ways to vote for delays or even against a sale of the company, awaiting full vesting of his or her options.
To read the full, original article click on this link: Early stage boards work for stock options, not cash. - Berkonomics – Business Insights from Dave Berkus
Author: Dave Berkus
