Only skimmed others' responses. But from what I know, agree this person should not be on your board or maybe even part of your startup if large "cash" compensation is his main motivation. I would say anyone with this mentality doesn't understand the world of startups with limited resources.
My understanding is that you don't really need an official advisory board. You can have him as an advisor without the board structure. I would say that's the best structure, and it's the advice I've been given by credible folks. If you want him more involved, then you can offer slightly more equity to be an advisor with the request for more active participation (hard part is defining what that really means).
But if you have to move heaven and earth to get him to really help out, I think that is sign enough that it may be best to keep in touch but move forward with your startup w/o worrying about his active participation. If you really like and trust him, you can always come back and structure a relationship later on. If you've made progress in getting traction, he'll likely want to help because your startup's potential may be more clear
I wouldn't hire someone as a contractor unless the person provides concrete, tangible benefits to your startup which you pay for (code, sales, etc)... not intangible industry expertise which though valuable, may leave you in a situation where you feel like you're paying a lot for questionable, ambiguous return.
You could be creative and structure a consultant/contractor payment arrangement where you only pay per lead, introduction, or closed sale. But be wary, if his only benefit is receiving cash from you, the incentives won't be structured properly for him to want to help you in the right way. That's why you'll likely circle back to the advisor structure as probably best