Spanish Supreme Court’s ruling on directors’ remuneration
The Spanish Supreme Court’s ruling of 26 February 2018 on directors’ remuneration made advisable for many Spanish companies the review of their Bylaws and the way in which their governance bodies were adopting decisions regarding the remuneration of their Directors. However, today, there are companies that still have not reviewed and/or updated their Bylaws accordingly.
Hereinafter, we recall the principles that apply to this topic further to the abovementioned ruling of the Supreme Court:
- Statutory Reserve. In the companies where the position of director is remunerated, the Bylaws shall provide for the remuneration system, including all the compensation items that the directors may receive. The remuneration system may consist, among others, of fixed remuneration, attendance fees, variable remuneration, in which case the reference parameters for its calculation shall be included, participation in profits, remuneration in shares, severance pay and savings or welfare systems.
The Bylaws should not only provide for the remuneration system of the non-executive directors, but also for the remuneration of the managing or executive directors.
- Approval and layout of the maximum amount of remuneration for all directors. The General Shareholders Meeting shall approve the maximum amount of the annual remuneration of all the directors which shall remain in force until it may become further amended. Unless otherwise determined by the General Shareholders Meeting, this amount shall be allocated by agreement of the directors and/or the Board of Directors, where applicable.
The remuneration of the directors shall keep in any case a reasonable proportion to the relevance of the company, its current economic situation and the market standards for similar companies.
- Execution of an agreement between the managing/executive director and the company and its approval by the board of directors. The company shall enter into an agreement with the managing and/or executive director(s). This agreement shall be submitted for approval by the board of directors. The concerned director shall refrain from attending the deliberation and voting. The majority required to pass the agreement shall be two thirds (2/3) of the members of the board of directors. The approved agreement shall be included as an Appendix to the minutes of the meeting.
The agreement shall detail in full all the items corresponding to the remuneration to be obtained by the relevant director, who could not receive any other amounts or items not provided thereof in consideration of the performance of executive functions.
Consequently, companies should review whether or not they have: (i) included in their Bylaws the remuneration items of their directors; (ii) submitted to the approval of the General Shareholders Meeting the maximum amount of remuneration for all the directors and verifying that such figure has been conveniently updated; (iii) entered into an agreement with the managing director or executive director if applicable, approved by the Board of Directors and including all the remuneration items in consideration of the performance of executive functions.
Esther Pérez. Manager of Corporate and M&A