board discretion

Judgment Application

Formal assessments replace formulaic rules when directors decide if a founder has met the criteria for a bonus or an accelerated exit. Using board discretion allows for fairness in situations where external factors prevented a goal from being reached. Directors must act in good faith to avoid legal challenges from minority owners.

Strategic Adjustment

Goals that were set years prior may become irrelevant as the company evolves. Applying board discretion to modify these targets prevents the management team from being punished for pursuing a more profitable pivot. This flexibility allows the board to align incentives with the current reality of the business.

Managerial Risk

Relying on the whims of a committee creates uncertainty for the person in the seat. Because board discretion is by definition unpredictable, the founder cannot be sure of their final payout until the decision is formally recorded. This ambiguity drains attention and reduces the perceived security of the founder’s equity position.

The final outcome of a multi-year effort often rests on a single vote by people who may not have been present for the original work.