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What is Directors’ Remuneration?
Directors’ Remuneration (also referred to as Directors’ Compensation or Directors’ Fees) refers to any and all amounts paid to directors of a company in exchange for their service to the company. Remuneration can include cash compensation, stock compensation, bonuses, gifts, and fringe benefits. Directors’ remuneration is an important aspect of the overall compensation package for directors and is typically designed to reflect the responsibilities and contributions of the directors to the company.
Directors serve on the Board of Directors of a corporation and are tasked with oversight and governance of the corporation. The directors act in the best interest of the shareholders (the owners) of the corporation. There are two types of directors:
- Inside directors: Inside directors are directors who are also employees or executives of the corporation. They are typically familiar with the day-to-day operations of the company and have a good understanding of the company’s business and industry. These are often the top management employees of the company, which may include the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), the Chief Operating Officer (COO), or any other key executive employees.
- Outside directors: Outside directors are directors who are not employees or executives of the corporation. They are often brought in from outside the company to provide independent perspectives and expertise on matters related to the corporation’s governance and strategy.
Both inside directors and outside directors play important roles on the Board of Directors of a corporation. Inside directors bring a deep understanding of the company’s operations and industry, while outside directors bring a fresh perspective and independent judgment to the board. Together, the directors work to oversee the governance of the corporation and act in the best interests of the shareholders.
Journal Entries for Directors’ Remuneration
Journal entry for directors’ remuneration paid in cash
Example: James Nguyen, a non-executive director of Fresh Spa Inc., receives $50,000 quarterly, paid in cash, for his services provided to Fresh Spa Inc. as a director. Each quarter end, the accounting manager books the following entry to recognize the payment to James:
| Account | ||
|---|---|---|
| Director’s compensation expense | $50,000 | |
| Cash | $50,000 |
Journal entry for directors’ remuneration paid in stock
Example: James Nguyen, a non-executive director of Fresh Spa Inc., receives $50,000 quarterly, paid in the form of shares/stock of Fresh Spa Inc., for his services provided to Fresh Spa Inc. as a director. Each quarter end, the accounting manager books the following entry to recognize the stock awarded to James:
| Account | ||
|---|---|---|
| Director’s compensation expense | $50,000 | |
| Common shares | $50,000 |
