The remuneration of the directors of the company
First of all, it should be noted that the position of administrator can be paid or not, the Capital Companies Law (hereinafter, LSC) establishes in its article 217 that the position of administrator is free, unless the bylaws of the company stipulate that it must be remunerated, determining in the same the remuneration system and setting the remuneration concept or concepts to be received by the administrators. Among the established concepts, one or more may be chosen, LSC establishes the following:
- A fixed assignment.
- Attendance allowances.
- Participation in the profits of the company.
- A variable remuneration.
- Remuneration through shares of the company for public limited companies, which in addition to being expressly provided for in the bylaws, must require the agreement of the General Shareholders’ Meeting, said agreement must include the maximum number of shares that can be assigned as remuneration, as well as their value.
- Indemnity for termination, unless it was motivated by the breach of the functions entrusted to the administrator.
- Remuneration through savings or pension systems.
In addition, the maximum amount of the annual remuneration of the group of administrators must be approved by the General Meeting, said amount will remain in force until its modification is approved . The distribution of the remuneration among the different administrators will be established by agreement of the same, unless the General Meeting determines another distribution criterion. If the company has a Board of Directors, it will be in charge of setting the remuneration of each one of the directors, taking into account the functions and responsibilities attributed to each one of the directors.
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In any case, the remuneration of administrators must be adapted to the importance of the company, the economic situation that it has at any given time, that is, the amount charged by the administrator cannot be exorbitant compared to the earnings of it. For this reason, the LSC establishes that the remuneration system established must be aimed at promoting the profitability and sustainability of the company in the long term, avoiding excessive risk and rewarding unfavorable results.
It can also consist of a participation in the benefits, determining in the bylaws the maximum percentage or participation. In the case of limited liability companies, said percentage may not be greater than 10% of the distributable profits, while in the public limited company the amount of participation in the profits will be given after covering the legal and statutory reserves, in addition to recognizing shareholders a dividend of 4% of the nominal value of the shares or the type established in the bylaws.
In addition, in the case of listed companies they must submit, at least every three years, to the General Meeting the approval of the remuneration policy, and must be set on the agenda as a separate point. In this way, it is guaranteed that the General Meeting is the one that has control over the remuneration of the administrators, this body being in charge of setting the parameters, terms and conditions of the remuneration.
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For its part, the Supreme Court, in its judgment of February 26, 2018, maintains that the concept of remuneration of administrators must include both remuneration for deliberative functions and for executive functions. Based on this, the form of approval of the remuneration of directors who perform executive functions must also be subject not only to the provisions of article 249 LSC, but also to the provisions of article 217. Therefore, the bylaws must contain The remuneration system for executive functions, in addition to the amount paid for the performance of said functions, must be included within the maximum annual amount set by the General Meeting.
In summary, and graphically, the sentence explains the remuneration system of capital companies in three points:
- The statutes must determine if the position of administrator is paid or free, if it is paid, the remuneration system for administrators must be established therein, detailing the concepts for which remuneration will be received.
- The General Meeting must approve the maximum annual amount of remuneration to be received by the board of directors as a whole, establishing if they also consider it pertinent instructions on the distribution of that amount among the administrators.
- The administrative body will be in charge of distributing the remuneration, always respecting the maximum limit established by the General Meeting. It will also be the body in charge of formalizing the contracts with the executive directors as established in article 249 LSC.
Taxation in the remuneration of company administrators
Concentrating now on the fiscal level, the remuneration of the administrators, as long as they meet all the aforementioned requirements, are deductible as a corporate tax expense. For its part, in the case of administrators, the Personal Income Tax Law establishes that “the remuneration of administrators and members of the Boards of Directors” shall be considered as work income”. Logically, these remunerations are subject to withholding.
In conclusion, the bylaws must determine whether the position of administrator is free or paid and, in the event that it is paid, they must detail the system by which The remuneration of the administrators will be carried out, setting the remunerated items. The General Meeting, for its part, must approve the maximum annual amount of the remuneration of administrators.
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Member of the Commercial Law Department