What Is Directors' Remuneration?

Directors' remuneration is the full package of compensation received by a director from a company. It is not simply the salary, but can also include bonus payments, stocks, options to buy stocks, and other benefits. Relevant legislation on company structures can restrict the way directors' remuneration is calculated, especially where it has tax consequences.

A director is a supervisory officer of a business. In most countries, directors only exist in a business that is a separate legal entity such as a corporation, or a similar type of company, rather than a sole proprietorship or ordinary partnership. While a director may own shares in the business, this is not usually mandatory. The director's job is not usually connected to the day to day running of the business, but rather to act as a representative of the shareholders in overseeing the business. Directors often have the power to vote on issues that are not considered significant enough to require a vote of all shareholders.

Exactly what the level of directors' remuneration should be is usually a matter for the company itself to determine, for example through the articles of association. Some companies let shareholder vote on proposed remuneration packages, while others allow the directors themselves to set the levels. There can be an inherent legal restriction in that directors are required to act in the best interests of the company. If the company is in financial difficulties, excessively high levels of directors' remuneration could be considered a violation of this restriction.

One of the more complicated elements of directors' remuneration is that it is made up of many different elements compared with ordinary employees. Often a basic salary is topped up with benefits such as healthcare insurance or retirement benefit plans. There can also be bonuses based on the company's performance, payment in shares, or payment in the form of share options that allow the director to buy shares from the company at a fixed price that may be sold on the open market at a profit.

The precise tax treatment and other restrictions on directors remuneration may depend on both the country or state concerned, and on the legal structure of the business. Distinctions that can be important include whether or not the director is also a shareholder in the company, whether or not the director is performing other professional duties for the company such as acting in a direct management role. It may also make a difference whether or not the remuneration is entirely fixed or dependent on the performance of the company.