Director Fees, Salaries and Remuneration

A GUIDELINE  TO DIRECTOR FEES, SALARIES, AND REMUNERATION

Director compensation is a complex area of financial reporting and corporate governance. Accounting standards applicable to private entities require companies to properly account for and disclose director fees, director salaries, and director remuneration in their financial statements. Understanding the precise distinction between these components is vital for accurate reporting.

1. Director Fees

• Recognition: Director fees are recognized as an expense in the period the services are rendered, regardless of when payment is made
• Disclosure: Fees paid to directors must be disclosed in the financial statements. Different fee amounts received by directors should be clearly itemized.

2. Director Salaries

• Recognition: Director salaries are paid for employment duties and are considered employee benefits, distinct from director fees. These are recognized as expenses in the period the services are rendered.
• Disclosure: Salaries must be disclosed separately from director fees in the financial statements

3. Director Remuneration

• Definition: Director remuneration includes all forms of compensation provided to directors—fees, salaries, bonuses, other benefits, and incentives.
• Recognition: Remuneration is recognized when incurred (earned by the director), irrespective of the payment date. Disclosure: The total remuneration paid to each director must be disclosed, itemized by components such as fees, salaries, bonuses, and benefits
• Disclosure: The total remuneration paid to each director must be disclosed, broken down into components like fees, salaries, bonuses, and benefits.

4. Tax Implications

• Director Fees: Fees are typically subject to income tax (and reported in the director's personal tax returns). Companies must withhold tax at the applicable rate and remit it to tax authorities.
• Director Salaries: Salaries paid under an employment contract are subject to income tax and EPF (Employees Provident Fund) contributions. Employers must comply by deducting tax and making EPF contributions on the director's behalf
• Director Remuneration: The entire package, including bonuses and non-cash benefits (e.g., cars, housing) , may be subject to tax. All such benefits must be evaluated and disclosed in accordance with Malaysian tax laws.

5. Governance & Transparency

• Governance: Director remuneration must be approved in line with good corporate governance practices, typically by shareholders in the Annual General Meeting (AGM) or the board.
• Disclosure: Companies are required to fully disclose the breakdown of director compensation in their financial statements for transparency.