On December 3, Law 31/2014 was approved, which modifies the Capital Companies Law to improve corporate governance, published in the BOE on December 4 and which has already entered into force, with the exception of certain provisions contemplated in its Transitional Provision.
We now analyze the regulation of directors' remuneration.
The Law requires that the bylaws establish the remuneration system for directors for their management and decision-making functions, with special reference to the remuneration system for directors who perform executive functions. It is worth noting the recognition of two different types of remuneration: the remuneration of directors “in their capacity as such” (subject to the principle of statutory confidentiality and to the approval of the board) and that for the performance of executive functions, which requires the signing of a contract between the board and the director affected.
Although the Law establishes that the position of director shall be free of charge, unless the bylaws state otherwise, the different ways of remunerating directors are specified. This remuneration system may consist, among others, of:
- A fixed allocation.
- Assistance diets.
- Profit sharing.
- Variable remuneration with general reference indicators or parameters.
- Remuneration in shares or linked to its performance.
- Severance pay, and…
- Timely savings or pension systems.
“The new law attempts to bring rationality to the setting of directors’ remuneration”
The maximum amount of the annual remuneration of all directors must be approved by the board and, unless otherwise determined by the board, the distribution of remuneration among the various directors will be established by agreement between them, taking into account the functions and responsibilities of each one. In any case, this remuneration must be in “reasonable proportion” to the importance of the company, its economic situation at any given time and market standards in comparable companies.
For limited liability companies, the requirement that the remuneration must be set for each financial year by agreement of the board is eliminated; thus, the amount set at the meeting is maintained as long as it is not modified by the board.
As regards the withholdings applicable to these remunerations, the DGT, in response to a binding consultation, argues in one of its sections that all remunerations received for the exercise of the functions of the position of administrator, regardless of whether a senior management employment contract had been formalised, must be understood as employment income, with the 35% rate being applicable for personal income tax withholdings.
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