STS 98/2018, new criteria of the Court regarding the remuneration of executive directors

On 26/02/2018, the Supreme Court issued Ruling 98/2018, which substantially modified the criteria for the remuneration of executive directors.

For the purposes of contextualizing, it should be noted that, until the date of publication of STS 98/2018, the majority criterion of the Doctrine and of the Commercial Courts, and even of the DGRN, has been the non-cumulative interpretation of Articles 217 and 249 of the Law on Corporations. These articles regulate the remuneration of directors and the delegation of powers to the board of directors. The alternative interpretation made until the publication of STS 98/2018 implied that the remuneration of an executive director to whom functions had been delegated was not subject to the provisions of Article 217 of the Spanish Companies Act.

Following the repeated STS 98/2018, the interpretation of those articles must be made in a cumulative manner. Consequently, the remuneration of executive directors is required to exceed the following three requirements:

-          That the Articles of Association provide for the remuneration of the post.

-          That the Shareholders' Meeting  should approve the maximum remuneration and, if applicable, the specific remuneration policy.

-          That the Board approves the delegation of powers and remuneration, respecting in all cases i) the possible limits established in the Articles of Association and ii) the limits established by the Shareholders' Meeting.

In order to ensure that the company's Articles of Association are being carried out in accordance with the law, they should be revised and adapted, if necessary. It could also be a good moment to establish a system of remuneration by objectives of the company's governing body. At BAUM we have experience in either of these fields, so please do not hesitate to contact us for any further information.

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