COMMERCIAL
Helene Atxa
The remuneration system for directors, particularly for those serving as executive directors, has been and remains a subject of controversy. Evidence of this lies in the differing criteria between case law and the doctrine of the Directorate-General for Legal Security and Public Faith (DGSJFP).
The Supreme Court, in its controversial Judgment 98/2018 of February 26—one that left no one indifferent—defined the scope of the reform introduced by Law 31/2014, of December 3, regarding Articles 217 (statutory provision and shareholder approval of the maximum remuneration amount) and 249 (requirement for a contract approved by a two-thirds majority of the board, with the affected party abstaining) of the Spanish Companies Act (LSC).
The Supreme Court opposed the stance held by the DGSJFP, which maintained that there was a general remuneration regime for directors (Article 217 LSC) and a special regime applicable to executive directors (Article 249 LSC). According to the DGSJFP, the remuneration system for executive directors fell outside the scope of Article 217 LSC and was therefore subject solely to Article 249 LSC.
In its ruling, the Supreme Court took a different position, stating that both regimes must be applied cumulatively rather than alternatively. In other words, the general regime established in Article 217 LSC applies to all directors, including executive directors. Consequently, their remuneration must be regulated in the company’s bylaws, be subject to the maximum annual amount set by the shareholders’ meeting for all directors, and be reflected in a contract, which must be approved by a two-thirds majority of the board and detail all the compensation elements they receive for performing executive functions.
Moreover, regarding executive directors, the Supreme Court advocated for a less rigid interpretation of the statutory provision requirement to allow for the adaptation of their remuneration to the changing demands of companies and economic activity while ensuring appropriate shareholder protections. However, the judgment did not define the limits of this proposed flexibility.
Against this backdrop, in which registry doctrine has gradually aligned with the Supreme Court’s stance, the DGSJFP’s Resolution of June 4, 2020 (BOE No. 206, July 30, 2020, 8802), relying on this flexibility, allowed the registration of a statutory clause providing for alternative remuneration systems for executive directors. It confirmed that company bylaws may refer to the contract between the executive director and the company to specify whether they will be remunerated for all or only some of the remuneration components outlined in the bylaws, without requiring their modification.
Recently, the DGSJFP has ruled three times on the statutory determination of executive directors’ remuneration. The Resolution of October 21, 2024 (BOE No. 281, November 21, 2024, 24307) introduced a novel approach to the required level of detail in statutory clauses regarding executive directors’ variable remuneration. It rejected the following wording: “a variable remuneration, according to general reference indicators or parameters.” While this wording exactly reproduces Article 217(2)(d) LSC, the DGSJFP concluded that the article requires specifying the exact indicators or reference parameters, although it also stated that they should be interpreted flexibly.
In another Resolution of October 21, 2024 (BOE No. 281, November 21, 2024, 24308), the DGSJFP examined a statutory clause stating that, for executive directors, the remuneration components to be received annually by directors will be determined by the general shareholders’ meeting and will consist of one or more of those specified in the bylaws. The DGSJFP deemed the clause valid, as it referred only to executive directors and not to all directors.
In a subsequent Resolution of October 30, 2024 (BOE No. 282, November 22, 2024, 24423), the DGSJFP assessed a statutory clause stating that “the remuneration of executive directors may consist of (…)”. The Registrar rejected its registration, arguing that remuneration cannot be optional (“may consist of…”) but must be unconditional. According to the Registrar, the clause should not leave it to the shareholders’ discretion to choose between one or more of the remuneration components listed, nor should it suggest that the position could be remunerated or unpaid, as the phrase “may consist of” seems to imply. However, the DGSJFP ultimately allowed the registration of the disputed clause.
It is also worth mentioning the Madrid Provincial Court’s Judgment 311/2024, of October 4, which confirms the lack of a unanimous criterion in this matter. Contrary to the DGSJFP’s position, the Provincial Court ruled that if the position of CEO is unpaid, the executive director is not required to sign a contract with the company. In the Court’s view, the justification for requiring a contract under Articles 249(3) and (4) LSC is specifically the existence of remuneration for executive functions.
In conclusion, recent developments in this area highlight the need to establish a clear, unified, and consistent approach shared by case law, doctrine, and registry practice, with the ultimate goal of ensuring greater legal certainty in Spain’s corporate landscape.
