Remuneration of Administrators

administrator-remmuneration

The remuneration of the administrators of a commercial company has usually been a rather controversial issue. The complex legal regulation of the matter, together with case law that is not always uniform, has contributed to this long-standing controversy.

It is therefore advisable to address in detail how the system of administrators’ remuneration should be established, the different concepts that may make up their remuneration and, most especially, the requirements and limits to which this is subject.

Requirements and limits

Both the law and case law establish a series of requirements and limitations that administrators’ remuneration must comply with. The most important of these are as follows:

  • Express statements in the company’s Articles of Association that the position of administrator is remunerated. If this is not specified, it is understood to be free of charge.
  • Determination in the Articles of Association of the form and items that will make up the remuneration.
  • Approval of the remuneration at the General Meeting of Shareholders.
  • Proportionality. Point 4 of Article 217 of the Capital Companies Act requires that administrators’ remuneration be in reasonable proportion to the importance of the company, its economic situation and the market patterns of other similar companies.
  • Profitability and sustainability of the company. The same article 217.4 establishes that the remuneration system established for administrators must at all times be aimed at promoting the long-term profitability and sustainability of the company.

A statement in the Articles of Association that the office is remunerated

Article 217.1 of the Capital Companies Act states that, in principle, the office of the administrator of the company shall be free of charge, unless the Articles of Association expressly state otherwise. Therefore, in order for the administrator to receive remuneration from the company, the company’s Articles of Association must expressly so stipulate.

The Articles of Association must also determine the specific items on which such remuneration is based, and the administrator may not receive supplements other than those expressly established in the Articles of Association. To this end, administrators’ remuneration may be determined by one or more of the following items:

  • Allocation of a fixed amount, either on a monthly, quarterly or annual basis.
  • Variable remuneration based on certain parameters or reference indicators.
  • Attendance allowances.
  • Profit-sharing.
  • Remuneration in shares or through share options.
  • Severance payments
  • Pension plans or other pension or savings systems.

When should the paid position be approved?

The General Shareholders’ Meeting is responsible for approving each year the maximum annual amount to be received as remuneration by the company’s administrators.

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With regard to the moment at which this approval must be carried out, the recent Supreme Court ruling of 13 May 2021 has declared that the maximum amount must be set by the General Meeting within the current financial year, without it being necessary for it to be carried out prior to the financial year.

However, under no circumstances may the administrators’ remuneration be approved after the end of the financial year, as has also been stated in the aforementioned Supreme Court ruling.

On the other hand, as long as the AGM does not approve another maximum amount, the amount initially set for previous years will be understood to be in force.

In short, the General Meeting that approves the administrators’ remuneration may be held at any time during the financial year, even at the end of the year, but never within the following financial years.

Another controversial question that arises is whether or not the majority shareholder who is also an administrator can vote to set the amount of his remuneration.

The aforementioned Supreme Court ruling of 13 May 2021 has also ruled on this issue, determining that the majority shareholder who is an administrator may also vote on the resolution approving the remuneration to be received, provided that he can prove that the resolution does not harm the company’s interests in any way.

Consequently, minority shareholders may challenge the remuneration set for the majority shareholder who is an administrator if they consider that such remuneration is in any way detrimental to the company’s interests.

Special reference to the remuneration of managing directors

In the case of managing directors of the company, article 249 of the Capital Companies Act stipulates that their remuneration must be reflected in a specific contract signed between the company in question and each managing director. This contract must be approved by the Board of Directors by a favourable vote of two-thirds of its members, without the director concerned being able to attend the deliberation or take part in the vote.

In addition to the items and amounts provided for in this specific contract, the managing directors may not receive any other remuneration for the performance of their executive duties.

Conclusion

In view of the above, the main conclusions to be drawn in relation to the remuneration of the administrators of a commercial company are as follows:

  • The onerous nature of the office of the administrator must be established in the Articles of Association. If the Articles of Association are silent on the matter, it will be understood that the administratorship is free of charge.
  • There are different forms of administrators’ remuneration, which may consist of fixed or variable amounts or a combination of both.

The Annual General Meeting of Shareholders must approve the maximum annual amount of administrators’ remuneration.

If you have any questions on this subject, please contact our tax advisors in Barcelona by e-mail or telephone.

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