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DIRECTORS' FEE IN COMPANIES
DIRECTORS' FEE IN COMPANIES
The directors' fee refers to the remuneration paid to members of the board of directors or individuals serving on various boards and committees for their responsibilities and contributions. This payment is considered a compensation for the time, effort, and expertise the board members dedicate to the company. While commonly applied in joint-stock companies, directors' fees are also observed in limited liability companies.
The primary purpose of the directors' fee is to encourage active participation of board members in the company’s strategic decision-making processes. These payments support involvement in company operations while ensuring board members fulfill their responsibilities more effectively. Additionally, directors' fees provide a separate financial source for board members outside their regular incomes.
Özay Accounting and Financial Consulting offers expert solutions for ensuring legal and financial compliance in company management processes. It provides professional assistance in structuring directors' fee payments in accordance with legal frameworks and managing the associated tax processes accurately.
LEGAL BASIS AND TAXATION OF DIRECTORS' FEES
Directors' fees are regulated under the Turkish Commercial Code (TCC) and the Income Tax Law. For companies to make such payments, the decision must be approved at the company's general assembly. The amount decided during the general assembly is paid within the framework of the rules outlined in the company's articles of association.
Directors' fee payments are considered “income” under the Income Tax Law and are subject to income tax. Therefore, directors' fee payments are subject to:
INCOME TAX DEDUCTION
The individual receiving the directors' fee must file an income tax declaration for this income. The company deducts the income tax at the time of payment and remits it to the relevant authorities.
STAMP TAX
Documents related to the directors' fee are subject to stamp tax, which is calculated and paid accordingly.
SOCIAL SECURITY DEDUCTIONS
If the individual receiving the directors' fee is subject to Social Security (SGK), social security premium deductions may also be applied to these payments.
It is essential to carry out taxation and legal reporting processes correctly to avoid financial penalties. Therefore, companies are strongly advised to seek professional accounting and financial consulting services.
DETERMINATION OF DIRECTORS' FEE PAYMENTS
The determination of directors' fee amounts is decided during the company's general assembly. This decision is based on several factors, including the company’s financial status, market conditions, the responsibilities of board members, and the scope of their duties. The main factors considered when determining directors' fees include:
COMPANY’S FINANCIAL STATUS
The profitability and cash flow of the company play a critical role in determining directors' fees.
CONTRIBUTION OF THE BOARD MEMBER
The active role of the board member within the company and their level of involvement in strategic decision-making may influence the payment amount.
MARKET CONDITIONS
Payment amounts in similar companies for board members can be used as a benchmark for comparison.
MEETING FREQUENCY AND PARTICIPATION
Directors' fees can either be determined as a fixed salary or paid per meeting attended.
In particular, joint-stock companies may specify the maximum limit for directors' fees and the number of eligible recipients in their articles of association.
CONTRIBUTION OF DIRECTORS' FEES TO COMPANY MANAGEMENT
Directors' fee payments help board members focus on the company’s strategic goals and make more effective decisions. The positive impacts of these payments on company management can be summarized as follows:
INCREASED MOTIVATION
Directors' fees encourage board members to devote more time to the company. Receiving monetary compensation enhances their sense of responsibility.
STRATEGIC CONTRIBUTIONS
Board members are better positioned to contribute to the company’s long-term strategic plans with the support provided by directors' fees.
IMPROVED COMPANY PERFORMANCE
A motivated and effective board positively impacts the company’s overall performance.
SUSTAINABLE MANAGEMENT
Directors' fees help companies retain qualified board members and establish a sustainable management structure.
However, it is crucial to ensure that directors' fees are determined fairly. Excessively high payments that harm the company’s financial stability can disrupt the financial balance and cause unrest among other employees. Therefore, directors' fees should align with the company’s budget planning.