In Spain, the salary of executive directors or general managers of non-listed companies, has been subject to various interpretations following the amendment of the Companies Act of 2014.
In a recent February 26th, 2018 decision, the Supreme Court expands on the interpretation of the aforementioned law in relation to the salary of executive directors in non-listed companies.
The question that the Supreme Court addresses is two-fold:
- On the one hand, if the salary of CEOs for the executive functions falls within the statutory reserve outlined for the directors by their functions as such
- On the other, what is the manner in which the salary should be approved, that is to say, what the administrators are to receive for their executive functions
In the decision, the Court considers that, although it will be the board of directors that sets the salary, it must be subject to the limits established by the partners in the bylaws and in the meeting itself.
It also points out that the concept of awarding a salary to administrators in their capacity as such includes both the remuneration of their deliberative and the executive functions. Therefore, the process of approving the salary of directors who perform executive functions must be subject to the regulations set out in article 217 and, consequently:
- The statutes must contain the remuneration system of the executive functions (although it does not refer to its amount)
- The amount paid for the performance of executive functions must be included within the maximum annual amount established by the board.
The same court states that the system of remuneration of directors is structured in three levels: the By-Laws, the General Meeting and the Administration / Board of directors. Hence, for a CEO with executive functions to receive remuneration, it is necessary that:
- The Statutes allow the remuneration of the position
- The General Meeting approves the maximum salary and, where appropriate, the detailed remuneration policy
- The Board approves the delegation of executive functions and their remuneration, respecting the statutory limits and those established by the General Meeting.
This decision challenges the current position of the General Directorate of Registries and Notaries (GDRN) and the majority doctrine, which argues that it is exclusively up to the board of directors to establish the remuneration of directors and administrators.
This article is not considered as legal advice