Is it true that executive compensation can be changed freely at any time?

“The president can change executive compensation at any time, in any way the president likes.” Have you heard this in office chatter or on social media?

A company’s money and an officer’s own wallet are separate. That is why executive compensation is subject to rules set by law. In fact, the times when it can be changed are limited. We checked this rumor against the original text of the Corporation Tax Act and the official information published by the National Tax Agency (NTA).

Four tax terms to know first

Here are plain-language explanations of the terms used in this article.

• Executive compensation (yakuin hōshū) = Pay that an officer receives in return for carrying out their duties. It is also called officer salary.
• Deductible expense treatment (sonkin sannyū) = Being able to subtract an amount as an expense when calculating corporation tax.
• Fixed periodic equal-amount pay (teiki dōgaku kyūyo) = Executive compensation paid in the same amount at each fixed interval of one month or less.
• Pay revision (kyūyo kaitei) = Changing the amount of executive compensation.

Conclusion

1. Executive compensation cannot be changed freely at any time. Whether you raise or lower it, you can change it and keep it deductible only at the limited times listed in the law and in the NTA’s explanation[1][2].
2. When you increase or decrease pre-notified fixed-amount pay (irregular compensation, such as a payment once a year), there are also set deadlines for notification[2].
3. If you make a change that departs from the rules, the increased portion and the like of the changed compensation is not deductible, and corporation tax goes up[1].

Our verdict: “True, with conditions.” You can change executive compensation itself. But it is not “at any time” or “freely.” The law sets the timing and the rules for deductibility.

The big picture: three types of compensation are deductible

First, let’s look at the overall picture of when executive compensation is deductible. Article 34, paragraph 1 of the Corporation Tax Act provides as follows.

内国法人がその役員に対して支給する給与（退職給与で業績連動給与に該当しないもの、使用人としての職務を有する役員に対して支給する当該職務に対するもの及び第三項の規定の適用があるものを除く。以下この項において同じ。）のうち次に掲げる給与のいずれにも該当しないものの額は、その内国法人の各事業年度の所得の金額の計算上、損金の額に算入しない。［1］

Reference translation (unofficial): Of the salary, etc. that a domestic corporation pays to its officers (excluding retirement pay that does not fall under performance-linked pay, pay for the duties of an officer who also has duties as an employee, and pay to which paragraph 3 applies; the same applies below in this paragraph), the amount that does not fall under any of the following types of pay is not included in deductible expenses in calculating the amount of income of the domestic corporation for each business year.

(Corporation Tax Act, Article 34, paragraph 1, opening part)

In other words, executive compensation is deductible when it fits one of the following three types[2].

Of the three types, “performance-linked pay” can be used by only a limited range of companies. According to the NTA’s explanation, for a family company (dōzoku gaisha), deductible performance-linked pay is limited to “one that is wholly controlled by a corporation that is not a family company”[2]. Many small and medium-sized companies are family companies, so note that performance-linked pay is in practice a hard type to use.

The rumor that “you can change it freely at any time” has to be read together with these three types.

Fixed periodic equal-amount pay: “any time” does not work

What is fixed periodic equal-amount pay? The definition in the law is as follows.

一　その支給時期が一月以下の一定の期間ごとである給与（次号イにおいて「定期給与」という。）で当該事業年度の各支給時期における支給額が同額であるものその他これに準ずるものとして政令で定める給与（同号において「定期同額給与」という。）［1］

Reference translation (unofficial): (i) Salary whose payment times fall at fixed intervals of one month or less (referred to in (a) of the following item as “periodic salary”) and for which the amount paid at each payment time in the business year is the same, and other salary specified by Cabinet Order as equivalent to it (referred to in the same item as “fixed periodic equal-amount pay”).

(Corporation Tax Act, Article 34, paragraph 1, item 1)

The condition is that the amount paid is the same at every payment time in the business year. This means that if you change the amount partway through, the pay falls outside this type.

NTA Tax Answer No.5211 lists the following three forms that count as fixed periodic equal-amount pay[2].

1. The payment times fall at fixed intervals of one month or less, and the amount at each payment time is the same
2. Even where there has been a pay revision, the amount at each payment time is the same before the revision and the same after it
3. It also includes economic benefits provided on a continuing basis, where the amount of the benefit provided is roughly constant every month

Number 2, the “pay revision,” is the heart of this rumor. Even with a revision, the pay can remain fixed periodic equal-amount pay only in the following cases. Based on the explanation in NTA Tax Answer No.5211, here is a table of the times when a revision is allowed.

Note that this “within 3 months” is a deadline that assumes an ordinary company that files its return within 2 months of the end of its fiscal period.

It is not “freely, at any time.” A revision is possible only during a set period at the start of the business year, or when there are unavoidable circumstances.

Put the other way around, it works like this. Suppose that after the summer bonus the board decides, “Let’s raise the monthly amount after all.” That falls outside the type of pay revision the law recognizes. The amount concerned is not deductible.

Pre-notified fixed-amount pay: irregular compensation has a notification deadline

“We’ll pay it once a year as a year-end bonus.” This kind of irregular compensation falls under the type called pre-notified fixed-amount pay. NTA Tax Answer No.5211 explains its requirements as follows.

事前確定届出給与とは、その役員の職務につき所定の時期に、確定した額の金銭または確定した数の株式（出資を含みます。以下同じです。）もしくは新株予約権もしくは確定した額の金銭債権に係る特定譲渡制限付株式もしくは特定新株予約権を交付する旨の定め（以下「事前確定届出給与に関する定め」といいます。）に基づいて支給される給与で、上記の「定期同額給与」および下記の「業績連動給与」のいずれにも該当しないもの（承継譲渡制限付株式または承継新株予約権による給与を含み、次に掲げる場合に該当する場合には、それぞれ次に定める要件を満たすものに限ります。）をいいます。［2］

Reference translation (unofficial): Pre-notified fixed-amount pay means pay that is provided under a provision to deliver, at a prescribed time for the officer’s duties, a fixed amount of money, a fixed number of shares (including capital contributions; the same applies below), stock acquisition rights, or specified restricted shares or specified stock acquisition rights relating to a monetary claim of a fixed amount (hereinafter the “provision on pre-notified fixed-amount pay”), and that does not fall under either the above “fixed periodic equal-amount pay” or the below “performance-linked pay” (including pay by succeeded restricted shares or succeeded stock acquisition rights; where any of the following cases applies, it is limited to pay that meets the requirements set out for that case).

(Excerpt)

The key point is the “fixed amount.” The basic rule is to fix the amount before paying and notify the tax office. As a rule, you cannot decide the amount after paying.

The notification deadline is also set. As a rule, it is whichever of the following dates comes earlier[2].

• The date when 1 month has passed from the day of the resolution of the shareholders’ meeting, etc.
• The date when 4 months have passed from the first day of the accounting period

Note that this “4 months” is also a deadline that assumes an ordinary company that files its return within 2 months of the end of its fiscal period (for a corporation that has received the special exception extending the filing deadline, the number of months changes)[2].

Where the provision was made because an extraordinary revision event occurred, the notification deadline is whichever is later of the deadline under the general rule and “the date when 1 month has passed from the day the extraordinary revision event occurred”[2].

“The results were good, so let’s add to the bonus afterward.” This idea does not fit the pre-notified fixed-amount pay type. If you pay an amount different from the notified amount, that bonus no longer counts as pre-notified fixed-amount pay, and as a rule the entire amount paid is not deductible[4].

Pitfall 1: Departing from the rules raises corporation tax

What happens if you make a change that departs from the rules?

Article 34, paragraph 1 of the Corporation Tax Act provides that executive pay that fits none of the three types is “not included in deductible expenses”[1]. The portion of a monthly change that falls outside the fixed periodic equal-amount pay type is not deductible.

If it is not deductible, the amount subject to corporation tax goes up by that much. You raised the executive compensation, and corporation tax goes up too. It is a double expense.

NTA Tax Answer No.5211 adds the following note about cases that do not count as an earnings-deterioration revision event[2].

（注） 法人の一時的な資金繰りの都合や、単に業績目標値に達しなかったことなどはこれに含まれません。

Reference translation (unofficial): (Note) A temporary cash-flow problem of the company, or simply failing to reach a performance target, is not included.

In other words, an earnings-deterioration revision event is recognized only where the company’s finances have truly deteriorated. A temporary cash-flow problem or missing a target does not count as an earnings-deterioration revision event, even for a reduction. Also, the earnings-deterioration revision event is a provision for reductions, and it cannot be repurposed as a reason for an increase. So, whether you increase or decrease the amount, you cannot change it freely just by citing “worsening earnings.” Deductibility is kept only if the pay follows one of the types (fixed periodic equal-amount pay, pre-notified fixed-amount pay, or performance-linked pay), or falls under an exception such as an extraordinary revision event or an earnings-deterioration revision event.

Furthermore, an officer who receives the pay owes income tax and resident tax on any increase[3]. Executive compensation is salary income. However, this tax burden on the officer applies whether or not the compensation is deductible for the company, so it does not increase because of departing from the rules. What increases because of a change that departs from the rules is the company’s tax burden.

“The president can change it at any time” is correct if it means the company can change it freely in practice. For tax purposes, however, not every free change is deductible.

Pitfall 2: Unreasonably high compensation is also disallowed

There is one more pitfall, this time about the amount. NTA Tax Answer No.5211 explains that even compensation that fits the three types is subject to the following.

ただし、次に掲げる給与のいずれかに該当するものであっても、不相当に高額な部分の金額は、損金の額に算入されません。［2］

Reference translation (unofficial): However, even if it falls under any of the following types of pay, the amount of the portion that is unreasonably high is not included in deductible expenses.

(Excerpt)

Even if it meets the three types, the portion that is unreasonably high drops out of deductible expenses.

The calculation “if I file the notification properly, I can set it as high as I want” does not hold. Deductibility is examined on both the type and the amount.

What to do

Here is a table of how to handle each situation when you change executive compensation.

For the timing of a change and whether the amount is reasonable, consulting a tax accountant is the surest way. Executive compensation determines whether the changed amount is deductible. A change made on impulse affects the corporation tax calculation.

Summary

“Executive compensation can be changed freely at any time” is true, with conditions. You can change the compensation itself. But deductibility is kept only for changes made at the times the law sets.

For fixed periodic equal-amount pay, the general rule is that a revision is made within 3 months of the start of the business year. There are also times for unavoidable circumstances, namely an extraordinary revision event and an earnings-deterioration revision event. For pre-notified fixed-amount pay, you fix the amount before payment and notify by the deadline.

A change that departs from the rules is not deductible. On the company side, corporation tax goes up by the amount that is not deductible. The officer still owes income tax and resident tax. When changing executive compensation, decide the timing first and do not forget the notification. Consulting a tax accountant before the change is the quickest route.

Sources

• ［1］Corporation Tax Act, Article 34 (e-Gov Law Search, Japanese)　Checked: 2026-10-07
• ［2］NTA Tax Answer No.5211 “Salary paid to officers (for payment resolutions on or after April 1, 2017)” (Japanese)　Checked: 2026-10-06
• ［3］Income Tax Act, Article 28 (e-Gov Law Search, Japanese)　Checked: 2026-10-06
• ［4］NTA Q&A case “Determining whether pay was provided as stipulated (pre-notified fixed-amount pay)” (Japanese)　Checked: 2026-10-07

Note: This article is based on laws and official information as of October 7, 2026. It is a translation of the Japanese original; if the two differ, the Japanese version prevails. Quotations from laws and official sources are given in the original Japanese, followed by unofficial reference translations. Sources are limited to laws (e-Gov) and official pages of the NTA, all in Japanese. If a correction is needed after publication, a correction record will be added at the end of this article (Correction policy).