End of obligation to include the remuneration for directors with executive tasks in the by-laws
Published on 18th Nov 2015
The requirement to include or not the remuneration for directors with executive tasks in the company’s by-laws has been an ongoing debate in the last few years. After the amendment of the Corporate Companies Act by means of Law 31/2014, of 3 December, which modifies the corporate companies act in order to improve corporate governance there have been several attempts to end this debate. Still, not until the publication of a resolution by the Directorate General for Registers and Notaries issued on 31 July 2015, was it made clear that this article, at least for the time being, is only required for director tasks which are merely deliberative and not executive.
Prior to the amendment introduced by Law 31/2014, the general view concerning the remuneration of directors defended the application of article 217 of the Corporate Companies Act (“CCA“), pursuant to which any director’s remuneration (regardless of whether their specific tasks were of a deliberative (supervision and control) or executive nature) had to be included in the company’s by-laws, with adequate purpose and accuracy (the Resolution of the Directorate General for Registers and Notaries (“DGRN“) of 17 June 2014 refers to this issue).
Law 31/2014 set out some new significant features in this regard, foreseeing a payment dichotomy, and which are also applicable to listed companies: on the one hand, the statutory remuneration, approved by the general meeting, for holding the office of director; and, on the other hand, for performing executive tasks within the company. The latter would be the case of managing directors or directors with executive tasks, who, by virtue of the DGRN Resolution dated 31 July 2015, could merely have an extra-statutory consideration. Therefore, in this second case, remuneration for directors performing executive tasks may be exclusively set out in an agreement to be signed by the company and the corresponding director, and it does not have to be necessarily included in the by-laws.
This agreement must:
- detail all the concepts for which the director may obtain remuneration for performing executive tasks, including, as appropriate, a possible compensation for early termination of these tasks and the quantities to be paid by the company as insurance premiums or contributions to funds;
- comply with any remuneration policies approved, as the case may be, by the general meeting; and
- be approved by the board of directors with a majority of two thirds of its members. It should be emphasized that the affected director will not have voting rights and will not be able to attend the discussion.
Regardless of the novelties introduced in Law 31/2014, the debate regarding this issue has been ongoing. A part of the doctrine considered that the statutory reserve for directors with executive tasks was still in effect. All of it largely based on the opacity shown in the Shareholders’ Meeting and the lack of transparency, which is contrary to international recommendations, that would arise as a result of deleting the statutory inclusion of the remuneration for executive tasks. It should also be taken into account that this remuneration frequently includes the majority of the directors’ remuneration within the company. Therefore, and pursuant to this doctrine, Registrars have not allowed the registration of any statutory clauses which stated that the remuneration for executive tasks did not have to be included in the company’s by-laws.
The Resolution of 30 July 2015 has finally clarified and solved this issue, at least for now, confirming the position of a significant part of the doctrinal sector that did not agree with the last interpretation given by the majority of Registrars. This resolution has clearly established, although not in depth, the difference between both types of remuneration (the one inherent to the role of director or to any deliberative tasks, and the one for executive tasks). The first one must necessarily be included in the by-laws, and the second one will be regulated by means of an agreement with the company, as detailed above, introduced by Law 31/2014 and described in article 249 of the CCA.
Finally, it should be said that this resolution just has a corporate and registral impact. Therefore, we should watch closely what labor jurisdictional authorities resolve in relation to the binding theory, because, even if there are sectors in the doctrine that have confirmed its disappearance, the truth is that this issue is still not solved.