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Do board members get paid? How much are board members paid?
These are common questions, but the response isn’t as simple as you might imagine. The real answer? It depends. Public company directors are almost always paid (sometimes very well). Nonprofit board members are practically never paid. Startup boards fall somewhere in the middle.
Compensation for board members is shaped by the type of organization, the board’s governance structure, and the director’s role.
To clear up the mystery, we’ve compiled a guide that breaks down board compensation sector by sector. You’ll learn what’s acceptable under governance best practices and what boards should watch out for when setting director compensation.
Are Board Members Paid?
Whether board members are paid depends on the type of organization. The answer generally won’t be the same for public company boards and nonprofit boards, and private company boards could go either way.
Here’s a basic rundown:
- Public company boards usually have paid board members. Payment might come in the form of retainers, meeting fees, and equity.
- Nonprofit boards are typically made up of volunteers, and positions are unpaid.
- Payment for private company boards varies widely. Board members may be paid retainers, equity, or nothing.
- Startup boards are often equity-based, with cash rare at early stages.
- Credit union boards are usually made up of volunteers, but some larger ones pay fees.
Board compensation is structured to ensure payment doesn’t compromise a director’s independence or judgment. All organizations should have a conflict of interest policy in place to dictate how compensation conflicts can be avoided.
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Public Company Board Compensation
Public company board members are typically paid through one of the following methods, as determined by the compensation committee.
- Annual Board Retainer: Base cash payment, regardless of how many meetings members attend (typically $50,000-$150,000)
- Per-meeting Fees: Specific fee for each meeting attended (a less common option, as many companies have moved to flat retainers)
- Equity Compensation for Board Directors: Restricted stock units (RSIs) or stock options (this method aligns directors with shareholders)
- Committee Fees: A premium paid alongside other payment types, this is an additional retainer for committee membership, provided for specialized tasks beyond standard board duties. The lead independent director is typically paid an additional $25,000 to $50,000. Total independent director compensation for directors of S&P 500 companies averages around $300,000+ with cash and equity combined.
Nonprofit Board Member Compensation
Nonprofit board members typically serve as volunteers, with no payment for governance services. The volunteer structure ensures companies maintain 501(c)(3) tax-exempt status.
However, there are some exceptions. For instance, staff members who also serve on the board (such as executive directors in small nonprofits) may get paid. Some large nonprofits and foundations also pay independent trustees.
Nonprofit boards operate under fiduciary duties focused on meeting the needs of the communities they serve. This can mean that the involvement of any compensation can introduce conflict of interest implications. Maintaining complete transparency and aligning with IRS regulations for nonprofits can help mitigate these implications.
Private Company Board Compensation
There are no legal requirements for private companies to pay directors. Payment is purely at the company’s discretion. In family-owned businesses, board members are often unpaid, but family members may receive dividends separately. In PE/VE-backed companies, investor-appointed directors are typically unpaid because they’ve already been compensated by the private equity or venture capital raised to meet organizational goals.
Independent directors on private boards are often paid a retainer (typically averaging $20,000-$40,000 per year). In some cases, equity grants or phantom equity (cash bonus equivalent to the value of a specific number of shares) are paid to align independent directors with organizational outcomes.
Startup Board Compensation
During the early stages of a startup, most boards are made up of founders and investors who serve without additional cash pay. However, independent directors are often compensated with equity of 0.1%-0.5% options, vesting over 2-4 years. When choosing equity for payment, it’s crucial to remember that while equity creates alignment, potential conflicts can occur on exit decisions.
Choosing when to add cash payments for startup board members can be complicated. Series B+ companies with non-investor independent directors typically provide payment. This structure ensures you can maintain board independence when compensation is involved.
Credit Union Board Compensation
Payment for credit union boards depends on whether the institution is a federal or state-chartered union. By law, directors of federal credit union boards must serve without compensation. Regulations for state-chartered credit unions vary by state, with some allowing fees.
While direct payment isn’t always permitted for credit union boards, expense reimbursement (travel, training, and conference attendance) is universally allowed. In larger credit unions, education and professional development are also often covered.
Hospital and Healthcare Board Compensation
Most board members of community and nonprofit hospitals serve as volunteers with no payment. In large health systems, compensation is more common, with retainers averaging from $20,000 – $75,000. For-profit hospital company boards are compensated similarly to other public company boards, with payments for board members.
Regardless of the type or amount of compensation provided for board members, committees must take care to avoid noncompliance with Stark Law and anti-kickback statutes. Compensation structure and compensation reporting should be set up to ensure that how much hospital board members make is linked directly to services rendered and cannot be connected to patient referrals.
Compensation Committees and Director Pay
Since an organization’s senior leaders cannot ethically set their own salaries, the task is appointed to an independent compensation committee. The compensation committee uses regulatory standards and performance evaluation methods to review director compensation. Benchmarking (comparing compensation against peer organizations) is also often used to ensure competitive pay for effective board recruitment. After evaluation, the committee typically recommends director pay to the board for full approval.
Shareholders at public companies vote on executive compensation to ensure fairness. Director pay is also becoming increasingly scrutinized. When disagreements arise, boards turn to their conflict of interest policy to follow a set process to reach a fair conclusion. Regardless of how board compensation is approved, public companies must disclose director compensation in proxy statements to ensure transparency.
Governance Considerations Around Board Pay
Compensation structures for board members must be intentional, precisely documented, and closely aligned with governance responsibilities. Here’s what you should know:
- Paid directors must still meet independence criteria. Independence is generally defined by a lack of conflict of interest, which includes ensuring compensation is limited solely to director fees and that the director has no relationship with the organization that could bias decision-making.
- Nonprofits must ensure that any pay to board members doesn’t exceed IRS intermediate sanctions for unreasonable pay, to avoid excise tax on excess benefit transactions.
- Board members shouldn’t vote on their own compensation packages. Known as “self-dealing,” the practice is considered unethical governance, which can lead to higher pay without justification and diminish trust in the organization.
- All director compensation decisions should be recorded in board minutes to ensure full transparency and avoid legal complications.
Board of directors’ compensation depends on several factors regarding how organizations operate. Yet, all boards share requirements to conduct operations in a way that aligns with the company’s best interests. This includes providing clear and accurate documentation of how board members are compensated.
Onboard helps boards improve governance practices and compliance tracking with a range of easy-to-use features that streamline compensation committee workflows and simplify documentation of board meeting records and auditing requirements.
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Frequently Asked Questions
Are board members paid?
Whether board members are paid depends on the type of organization and other factors, such as local regulations and the company’s age. Public company board members are the most likely to be paid, while nonprofit board members seldom receive compensation.
How much do public company board members get paid?
Board member salary depends on the payment method and organizational regulations. According to Indeed, the average salary for board members in the US is 89,943, with a range from $38,053 to $212,000+. In some cases, equity is also a factor.
Are nonprofit board members paid?
Members of a nonprofit volunteer board typically don’t get paid. However, there are exceptions, including staff members who serve on the board and independent trustees in large nonprofits and foundations.
Can a nonprofit pay its board members?
A nonprofit can pay its board members if state regulations don’t require members to be volunteers and payment doesn’t conflict with organizational bylaws. However, paying nonprofit board members can interfere with the organization’s tax-exempt status.
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About The Author
- Tyler Naples is an SEO Strategist focused on building scalable organic growth systems for OnBoard, the leading board management software solution. He specializes in connecting high-intent traffic segments with content that ranks, resonates, and converts.
