Global companies increasingly appoint foreign nationals as CEOs, CFOs, country managers or regional directors in their Turkish operations. These foreign executives usually negotiate more sophisticated compensation packages than standard employees: fixed salary, performance-based bonuses, long-term incentives, and, in many cases, stock options or other equity-linked instruments.
Designing and documenting these salary, bonus and stock option arrangements is not only a commercial negotiation issue. It also raises important questions under Turkish labour law, tax law, social security rules, capital markets regulations and personal data protection rules. Poorly drafted contracts can lead to unexpected tax liabilities, disputes over unpaid bonuses or arguments about whether the executive is an “employee” or a “director” under Turkish law.
This article provides a practical legal guide for salary, bonus and stock option agreements with foreign executives in Turkey, focusing on:
- How foreign executives are classified under Turkish law
- Key clauses for salary and benefits
- How to structure performance-based bonus schemes
- Legal and tax issues in stock option and equity incentive plans
- Termination, non-compete and dispute resolution strategies
The aim is to help foreign investors, multinational companies and foreign executives themselves understand the legal landscape before signing.
1. Legal Status of Foreign Executives in Turkey
1.1 Employee, director, or both?
A foreign executive may act in multiple capacities:
- As an employee (e.g., “General Manager” under an employment contract governed by the Turkish Code of Obligations and Labour Law),
- As a board member of a Turkish joint stock company (anonim şirket),
- As a signatory/director under the company’s internal representation rules,
- Or a combination of the above.
This classification is important because it affects:
- Applicable labour protections (severance, notice periods, overtime, annual leave),
- Social security contributions,
- Tax withholding obligations,
- Corporate governance rules (board resolutions, conflict of interest rules).
In practice, it is common for a foreign executive to have:
- A Board resolution appointing them as director or authorised signatory; and
- A separate employment or service contract regulating day-to-day duties, salary, bonus and equity incentives.
1.2 Work and residence permits
Foreign executives who physically work in Turkey generally need:
- A work permit (or permit exemption, if applicable), and
- A residence permit, unless they are exempt due to specific international agreements.
Companies should align the compensation package in the agreement with the information declared to the authorities (e.g. salary level submitted in the work permit application). Significant inconsistencies between the contract and official documents can create risks in inspections or disputes.
2. Core Structure of Salary Agreements with Foreign Executives
2.1 Fixed salary and currency issues
A modern executive compensation agreement typically starts with a fixed base salary. For foreign executives, base salary is often:
- Denominated in EUR or USD, or
- Denominated in TRY, but indexed to a foreign currency or inflation.
However, Turkish law includes mandatory rules limiting pure foreign currency salary payments for some categories of residents. At the same time, exchange rate clauses and financial adjustment mechanisms must be drafted carefully to avoid ambiguity and to remain enforceable.
A robust salary clause should address:
- Currency of salary (EUR, USD or TRY)
- Payment method and timing (bank transfer, monthly payment date, bank account details)
- Location of payment (Turkey or abroad)
- Gross or net basis (who bears tax and social security)
- Exchange rate to be used when converting foreign-currency obligations into Turkish lira
- Whether there will be cost-of-living adjustments or periodic reviews.
2.2 Gross vs. net salary arrangements
For local employees, salary is usually defined on a gross basis, and the employer withholds income tax and social security contributions. With foreign executives, parties sometimes negotiate a net salary guarantee, especially if the executive will relocate from a high-tax jurisdiction.
If a net salary is agreed:
- The employer assumes the risk of tax rate changes and fluctuations in exchange rates.
- The contract should clearly state that the company will “gross up” to cover all mandatory withholding taxes and contributions required by Turkish law.
- It should also define whether certain benefits (housing, school fees, car allowance) are included in the net salary or treated separately.
Poorly drafted net salary clauses are a common source of disputes when tax rules change or if the executive’s residence status is questioned.
2.3 Benefits and allowances
Foreign executives often expect an international package, including:
- Housing allowance or company-provided accommodation
- School fees for children
- Health insurance (sometimes including international coverage)
- Relocation expenses (flight tickets, moving costs)
- Car allowance or company car
- Travel and entertainment expenses
- Pension or private retirement contributions.
Under Turkish law, many of these elements may be considered part of the “wage” for labour law and tax purposes. Therefore, the agreement should:
- Specify which items are reimbursable expenses (against documented invoices, not treated as salary), and
- Which items are in kind or cash benefits forming part of the wage.
This distinction matters for:
- Calculating severance, notice and other indemnities,
- Tax withholding and social security bases,
- Termination disputes where the executive claims that “hidden benefits” should be added to their wage calculation.
3. Performance-Based Bonus and Incentive Schemes
3.1 Why bonus structures require clear drafting
Foreign executives commonly negotiate annual or quarterly performance bonuses, which may be linked to:
- EBITDA or profit targets,
- Revenue growth or sales performance,
- Market share or KPIs,
- Personal performance evaluation.
Under Turkish law, bonuses may become part of the customary and expected remuneration if they are:
- Regular,
- Predictable, and
- Habitually paid.
In that case, executives may argue that the bonus is no longer purely discretionary but a contractual right. To manage this risk, bonus clauses must be carefully structured.
3.2 Discretionary vs. guaranteed bonuses
Key questions to address:
- Is the bonus purely discretionary?
If yes, the agreement should explicitly state that the company retains full discretion to determine whether, in what amount, and under what conditions a bonus is paid. However, even discretionary schemes must comply with good faith and non-discrimination principles. - Is the bonus formula-based or guaranteed?
If the agreement promises a “target bonus” representing a specific percentage of base salary, and if certain objective metrics are met, the executive may claim the bonus as a contractual right. - Is there a guaranteed minimum?
Sometimes the first year includes a guaranteed minimum bonus, especially to encourage relocation. This should be clearly limited in time and contingent on continued employment.
3.3 Defining performance criteria and evaluation
For cross-border arrangements, disputes often arise because performance criteria are vague or subject to unilateral interpretation by the parent company. To reduce this risk:
- Specify measurable KPIs (e.g. revenue thresholds, EBITDA ranges, successful completion of projects).
- Clarify whether the metrics are calculated on a consolidated or local basis (e.g. Turkish subsidiary vs. global group).
- Define the evaluation period (e.g. calendar year) and the decision-making body (board of directors, remuneration committee).
- State the timing of payment (e.g. within 60 days from board approval of annual financial statements).
The contract should also address what happens to bonuses in events such as:
- Long-term illness or disability,
- Maternity/paternity leave,
- Change of control of the company,
- Termination with or without cause.
3.4 Bonus and termination: “good leaver” vs. “bad leaver”
In many international executive contracts, bonuses and other incentives are linked to the executive’s status as a “good leaver” or “bad leaver”:
- A good leaver (e.g. termination without cause, retirement, long-term illness) may receive pro-rated or full bonus payments.
- A bad leaver (e.g. dismissal for gross misconduct, resignation without notice) may lose entitlement to unpaid bonuses.
Turkish law does not prohibit such distinctions as long as they are not discriminatory and do not violate mandatory labour protections. However, the definitions of cause and misconduct must be aligned with the grounds for immediate termination under Turkish labour law to reduce litigation risk.
4. Stock Options and Equity Incentive Plans for Foreign Executives
4.1 Why equity incentives are used
For many foreign investors and startups, stock options, RSUs (restricted stock units), phantom shares or other equity-linked incentives are essential for attracting and retaining foreign executives. Equity incentives:
- Align the executive’s interests with shareholders;
- Encourage long-term commitment;
- Reward value creation rather than short-term earnings.
However, equity incentives introduced in a Turkish context face multiple layers of regulation and practical challenges.
4.2 Cross-border plan vs. local plan
Many multinational groups operate a global stock option plan governed by foreign law (e.g. English or Delaware law). Turkish executives and board members are invited to participate under a standard plan document plus a grant letter.
In such cases, there are at least three types of documents:
- The global plan rules (often in English, foreign law, foreign jurisdiction).
- A local supplement reflecting Turkish law, tax and exchange control issues.
- The individual grant or option agreement for the foreign executive in Turkey.
Companies should ensure that these documents are consistent with the executive’s employment contract. Conflicts between plan rules and the employment contract can create litigation risk, especially in termination situations.
4.3 Vesting, cliff periods and performance conditions
Typical features of stock option agreements include:
- Vesting schedule (e.g. four years, with one-year cliff and monthly or quarterly vesting afterwards);
- Cliff period during which no options vest if the executive leaves;
- Acceleration events (e.g. change of control, IPO, merger);
- Performance conditions, such as revenue milestones or profit thresholds.
For enforceability and clarity, the vesting conditions should be:
- Expressly defined,
- Linked to objective events (passage of time, achievement of specified metrics, board resolution), and
- Clearly connected to the executive’s status (employee, contractor, board member).
4.4 Good leaver / bad leaver rules for equity
Most equity plans for senior executives distinguish between:
- Good leaver events (death, disability, termination without cause, redundancy, change of control) in which some or all unvested options may continue to vest or vest immediately; and
- Bad leaver events (serious breach of duty, competition, dishonesty, resignation without notice) in which vested options may be forfeited or must be sold back at nominal value.
Under Turkish law, clauses that punish the employee excessively may be scrutinised by courts. To reduce risk:
- The plan should explain the rationale for forfeiture (e.g. preventing executives who damage the company from sharing in future gains).
- The bad leaver concept should mirror the statutory grounds for immediate termination and be proportionate to the misconduct.
- Any repurchase mechanism should specify the price formula and procedure in detail.
4.5 Taxation and social security implications
The tax treatment of stock options and equity-linked incentives for foreign executives depends on several factors:
- Where the employment is physically exercised (in Turkey or abroad);
- The executive’s tax residence;
- The timing of taxation: at grant, at vesting, or at exercise;
- Whether the incentive is paid in cash (e.g. phantom shares, cash-settled options) or shares;
- Whether there is a double taxation treaty between Turkey and the executive’s home country.
Commonly, Turkey may tax:
- Salary and bonus related to work performed in Turkey;
- Equity gains if they are considered part of employment income;
- Certain benefits in kind, such as company-provided housing or vehicle.
Because the taxation of cross-border stock options and RSUs can be very complex, companies should:
- Obtain specialist tax advice before implementing the plan;
- Decide who bears the ultimate tax burden (company or executive);
- Clarify whether the company will withhold income tax and social security contributions on the benefit.
These tax clauses should be mirrored in both the employment contract and the equity plan documentation.
5. Data Protection, Confidentiality and Competition
5.1 Personal data and compliance
Salary, bonus and equity arrangements necessarily involve processing large amounts of personal data about foreign executives, including identification details, bank information, performance evaluations and sometimes health data (e.g. for disability-related leaver status).
Turkey’s personal data protection regime (similar in structure to GDPR) requires:
- A lawful basis for processing,
- Transparent information notices to the executive,
- Adequate technical and organisational security measures,
- Special conditions for transfers of personal data abroad (for example, when HR systems are hosted on foreign servers).
The compensation agreement should include a data protection clause clarifying:
- What data will be processed and for what purposes (payroll, tax reporting, performance evaluation, equity plan administration);
- To which jurisdictions and service providers data may be transferred;
- The executive’s rights regarding access, correction, and objection;
- Reference to company policies on data retention and security.
5.2 Confidentiality and trade secrets
Foreign executives often have access to:
- Strategic business plans,
- Pricing and margin structures,
- Customer lists and contracts,
- Product roadmaps and IP,
- Financial information about group companies.
To protect these interests, agreements should contain robust confidentiality and trade secret clauses that:
- Define “confidential information” broadly but reasonably;
- Clarify that the obligation survives termination;
- Allow disclosure only to the extent required by law or court order;
- Provide for contractual remedies in case of breach.
5.3 Non-compete and non-solicitation covenants
Post-termination non-compete and non-solicitation clauses are common in foreign executive contracts, but they must comply with mandatory limits under Turkish law. In general:
- Non-competes must be limited in time, geography and scope of activities.
- There may be a requirement for appropriate compensation if the non-compete significantly restricts the executive’s professional freedom.
- Overbroad clauses risk being partially or wholly unenforceable.
Given the cross-border nature of foreign executives’ careers, companies sometimes:
- Choose a foreign governing law for the non-compete; or
- Structure non-compete protections through the equity plan (e.g. forfeiture of unvested options if the executive joins a competitor within a certain period).
These solutions should be evaluated carefully in light of public policy and mandatory Turkish rules.
6. Termination, Severance and Exit Negotiations
6.1 Interaction between employment law and contractual arrangements
When a foreign executive’s relationship with the company ends, multiple legal regimes intersect:
- Turkish labour law (notice periods, severance pay, job security rules, potential reinstatement claims);
- Company law (removal of board member, revocation of signatory powers);
- Equity plan rules (treatment of vested/unvested options, repurchase rights);
- Tax law (taxation of severance and exit bonuses);
- Any foreign law clauses in the contract or equity plan.
To avoid inconsistent outcomes, the termination clauses in the employment agreement should be harmonised with:
- Board resolutions regarding removal from office;
- Stock option and RSU plan documents;
- Any shareholders’ agreements or side letters.
6.2 Severance packages and settlement agreements
In practice, disputes involving foreign executives are often resolved through settlement agreements that:
- Provide additional severance or “ex gratia” payments;
- Clarify the treatment of outstanding bonuses;
- Address continued vesting or partial acceleration of equity;
- Obtain a broad release of claims from the executive.
Settlement agreements must respect mandatory labour rights. A clause where the executive “waives all statutory rights” without any additional benefit may be considered invalid. However, balanced settlements offering real value in exchange for mutual waivers are widely used and can provide legal certainty for both sides.
7. Drafting Checklist for Salary, Bonus and Stock Option Agreements with Foreign Executives
To summarise, when preparing or reviewing an agreement with a foreign executive in Turkey, parties should consider at least the following checklist:
- Legal status and roles
- Employee vs. board member vs. contractor
- Work permit and residence status
- Board resolutions and signatory powers
- Fixed salary and currency
- Gross or net basis
- Currency and exchange rate
- Payment timing and method
- Cost-of-living or inflation adjustment
- Benefits and allowances
- Housing, school, relocation, car, health insurance
- Classification as wage vs. expense reimbursement
- Impact on severance and tax base
- Bonus and performance incentives
- Discretionary vs. guaranteed bonus
- Measurable performance criteria and KPIs
- Timing of decisions and payments
- Treatment in good leaver / bad leaver scenarios
- Equity incentives (stock options, RSUs, phantom shares)
- Global plan vs. local plan
- Vesting, cliff and acceleration rules
- Good/bad leaver definitions
- Tax and social security obligations
- Coordination with employment contract and shareholders’ agreements
- Compliance and risk management
- Data protection and cross-border data transfers
- Confidentiality and trade secrets
- Non-compete and non-solicitation covenants
- Governing law and dispute resolution clause
- Termination and settlement
- Alignment of employment and corporate law steps
- Severance and exit packages
- Final settlement and release wording
- Treatment of outstanding bonuses and equity.
8. Conclusion: Aligning International Expectations with Turkish Legal Reality
Foreign executives appointed to leadership roles in Turkish companies often arrive with expectations shaped by Anglo-Saxon market practice: complex performance bonuses, generous severance packages and sophisticated stock option plans. Turkish law, however, contains mandatory labour protections, specific tax rules and regulatory constraints that must be taken into account when structuring these arrangements.
A well-drafted salary, bonus and stock option agreement for foreign executives in Turkey should:
- Translate global compensation models into documents that comply with Turkish labour, tax and company law;
- Provide clarity and predictability for both the company and the executive, especially regarding performance criteria, bonus rights and the fate of unvested equity upon termination;
- Address data protection, confidentiality and competition issues in a way that protects the business without breaching mandatory rules;
- Anticipate exit scenarios and articulate clear mechanisms for negotiation and settlement.
By investing time upfront in careful legal structuring and documentation, companies can minimise the risk of costly disputes and regulatory exposure, while foreign executives can better understand and protect their rights in the Turkish legal environment.
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