An organization’s board members don’t have to be employees, but if they aren’t, shareholders will have to determine the best method for compensating them for the time they expend and their expertise.
It seems that the news regularly features stories about the huge salaries of various boards and members of corporations. Smaller corporations usually provide much smaller compensation, but efforts should be made to make their efforts worthwhile. In most cases, an effective and experienced board can’t be put together without offering them something in return.
Many major corporations have drawn in high profile talent with promises of company stock, expense accounts, and cash stipends. This is a traditional method that most corporations use in order to find the best board members to run their organization. The only time when compensation issues occur is when board members begin using the corporation and its funds as their personal piggy banks. This eventually pierces the corporate veil and exposes the transgressors to a great deal of liability.
Reward Board Members with Company Stock
Companies often offer shares of companies stock to board members. The amount is usually based on multiple factors, the length of time they’ve been involved with the organization, their financial investments, and personal expertise and experience. If a board member is a high profile executive that can lend the company more credibility then the terms of compensation will be much higher. For highly sought after board members, a substantial percentage of shares might be required to sign on, and additional shares might have to be awarded as they continue working with the company.
Board members who assist in generating large profits for companies might receive bonus shares as a reward for their efforts. The opportunities vary, depending on what shareholders determine.
Reimburse Board Members for Expenses
Reimbursing board members is customary for any expenses they incur while advising the company or doing business on its behalf. Board members may incur possible travel and meal expenses in route to meetings, or they may use certain devices or phones to assist with company business. Reimbursing board members for these expenses or paying for the expenses involved with the devices is permissible as long as shareholders agree to the terms. All of the expense involved are completely tax deductible business expenses and should be listed on the business’s tax returns.
Offer Board Members Liability Insurance
Another extremely important and tax deductible expense incurred by shareholders is for liability insurance. Directors and officers can be sued in certain instances and liability insurance offers protection for them in case they are sued in connection with any work performed or advice given on the behalf of the company. This also provides board members with the ability to work freely and effectively manage the corporation without fearing for their assets and livelihoods should a mistake occur.
Cash Stipends Provide Excellent Compensation
For companies that are able to afford it, cash stipends are a great way to reward board members for excellent performance. Hardworking board members who’ve put in long hours in order to benefit the organization will appreciate and extra measure of appreciation for their efforts. These stipends can be contingent on meeting company goals or they can coincide with the length of service that a board member has served.
Shareholder Agreements Determine Direction
Shareholders usually decide on the frequency and methods that board members are compensated unless the shareholders have a passive role in running the corporation. If this is the case, then directors can vote on compensation packages once they have been appointed to their positions.
Many shareholders also serve on the board and board members become shareholders as soon as company stock is issued to them. In most situations group consensus prevents shady deals from occurring but these back room deals aren’t really an exception to the norm.