Paying The Board
Dear Advisor: Our board of directors consists of our chairman, (my father) our president (me), and four other shareholding relatives who are not active in the business. We meet quarterly for what are pretty routine meetings. Recently, the non-active directors requested directors’ fees, something we’ve never paid before. Lately business has been tough, so we can’t afford to pay much. Are there any rules of thumb that can help us determine fair compensation?
Different family businesses handle this matter in very different ways. Some are eager to pay directors’ fees as a way of making distributions without declaring dividends. To us, the key issue is the extent to which directors add value. A great board, usually with more outsiders than insiders can offer critical value by helping to grow and protect the business. Family members who serve by birthright rarely provide real value as directors unless they have the qualifications to be selected for other business’s boards. While we respect a wide range of different family’s answers to this question, when the board is all family we favor low or no pay. If they are going to pay for the job, the family should at least be able to employ people who have the experience to add more value than they cost.
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