How to pay family members who sit on the board: a practical guide

Board fees are often higher than the salary of a family member working in the family business. Without a clear appointment and compensation rule, the family can fracture. This guide sets out the two models that, in our experience, actually hold — and the rules that make each of them work.

Why this matters

In family-controlled companies, one question comes up again and again: should family members who sit on the board of the family business be paid the same as independent non-executive directors? And if yes, how?

The stakes are higher than they first look. A non-executive director's fee is often greater than the annual salary of a working cousin inside the group. Without a clear rule, the compensation question becomes a unity question — and tension in the family compounds across generations.

The good news: this is a solved problem. Two models work in practice, provided each is set up with discipline.

Model 1: No remuneration

The board seat is reframed as a family service. The family member receives no fee for sitting on the board.

For this model to work, set the following rules in writing:

• Service on the board is treated as a family duty, not a salaried role.
• Terms are fixed, with mandatory rotation between branches.
• Every branch takes its turn — no branch monopolises a seat across generations.
• Expenses (travel, training, board materials) are reimbursed; nothing more.
• The principle is communicated openly: serving the family is not a paid activity.

This model is simpler, more durable across generations, and easier to defend internally. It works particularly well when the family already has a strong culture of stewardship.

Model 2: Formal remuneration indexed to independent directors

The family member is paid a board fee, calibrated against what an independent non-executive director would receive for an equivalent seat.

For this model to work, two rules are non-negotiable:

• Strict appointment rotation. Fixed terms. No immediate renewal. No substitution of the outgoing member by a close relative (spouse, sibling, child). The seat is structurally not transferable within a household.
• Fee adjusted for age and experience profile. A twenty-five-year-old cousin appointed for a generational perspective should not be paid what a fifty-year-old independent director with thirty years of executive experience would command. The fee reflects the seat and the person sitting in it.

Additional guardrails worth setting in writing:

• The fee scale is published internally and accessible to every adult family member.
• Adjustments to the scale require approval by the family council, not the board itself.
• The fee is reviewed at fixed intervals, not in response to individual situations.

Three principles that apply in either model

Whichever path the family chooses, three rules sit underneath:

• Decide in advance. The compensation rule must exist before the first appointment, not be negotiated when a specific cousin is in line for a seat.
• Write it down. A rule that lives only in conversation will be re-litigated every generation.
• Make it known to all. Every adult family member should be able to read the rule, understand it, and see that it applies equally to them.

Diagnostic questions for a family reviewing its current setup

If your family already has board seats filled by family members, a short audit:

• Is there a written rule for whether family directors are paid?
• Is the rule the same for every branch, every generation, every person?
• Are terms fixed, with mandatory rotation? Or are seats effectively held for life?
• If fees are paid, are they adjusted for the age and experience of the holder?
• Has the rule been reviewed and reaffirmed in the last five years?
• Does every adult family member know what the rule is?

If the answer to any of these is no, the rule needs to be revisited before the next appointment, not after.

The guiding principle

The number itself matters less than the process around it. Fairness, transparency, and durability across generations are what protect the family. Every family will choose differently. None can afford to leave the question unanswered.

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