Compensation of administrators: non-listed companies vs. listed companies

Regarding the compensation of administrators, the Spanish Capital Companies Act (“LSC”) establishes a general scheme applicable to all types of capital companies (sections 217 to 249 and 219 LSC), and a special scheme for listed companies (sections 529 sexdecies to 529 novodecies LSC), that are those public limited companies the shares of which are admitted to trading on an official secondary securities market (section 495.1 LSC).
The main differences in terms of compensation of administrators between the non-listed and listed companies are the following:

  1. In non-listed companies, the position of an administrator is uncompensated, unless the bylaws otherwise provide (section 217.1 LSC). In listed companies, the position as a director of a listed company necessarily must be compensated, absent a provision to the contrary in the bylaws (section 529 sexdecies LSC).
  2. In both types of companies, the maximum amount of annual compensation of all administrators in their capacities as such must be approved by the general meeting. However, in non-listed companies, the maximum amount of annual compensation of all administrators in their capacities as such will remain in effect until modification thereof is approved (section 217.3 LSC), while in listed companies, it has to be approved by the general shareholders meeting at least every three years as a separate point on the agenda (section 529 novodecies.1 LSC).
  3. In listed companies, the board of directors must form a committee for remuneration (section 529 terdecies.2 LSC) which, among others, will have the function of proposing to the board of directors the remuneration policy for directors and general managers or those performing senior management functions under the direct supervision of the board, executive committees or managing directors, as well as the individual remuneration and other contractual conditions of executive directors, ensuring compliance therewith (section 529 quindecies.3.g) LSC). In non-listed companies, it is not mandatory form the referred committee for remuneration.
  4. In both types of companies are required that when a member of the board of directors is appointed managing director or given executive functions under another title, a contract must necessarily be entered into between the director and the company, which (a) must be approved in advance by the board of directors with the favourable vote of two thirds of its members and (b) must be attached as an annex to the minutes of the meeting (section 249.3 LSC). However, in listed companies, the bylaws only have to contemplate the compensation of the directors in their capacities as such (ie. deliberative functions) and not the compensation of directors for performance of executive functions, which has that be regulated in the contract set forth in section 249.3 LSC and respect the compensation policy for directors approved by the general meeting. With respect to non-listed companies, the issue is not peaceful and the discussion exists between defenders that the statutory reserve is only for the compensation of administrators in their capacities as such and those who advocate that the bylaws should include any kind of compensation that administrators perceive. This doctrinal discussion has transcended, as it could not be otherwise, the administrative and judicial bodies that have spoken out on this issue. As well, the Commercial Court number 9 of Barcelona, in its judgement of 27th November 2015, has considered that it is illegal to leave the remuneration of the executive directors to the contract without respecting the statutory reserve, while the General Directorate of Registries and Notaries by means of a resolution of 17th June 2016 considers that , after the amendments introduced in the Spanish Capital Companies Act by the Law 31/2014, of 3rd December, conceptually must be separated two scenarios: (a) the compensation of administrators in their capacities as such, which must appear  in bylaws, and (b) the compensation for strange functions to said capacity, as can be executive functions, which is not itself to appear in bylaws, but in the contract referred to in section 249.3 LSC.


October 2016
© 2016 José Luis Vecilla Camazón. All rights reserved

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