The Supreme Court makes an unexpected change to the legal treatment of executive directors’ compensation
Corporate Alert 1-2018
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
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