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Most of the provisions in Directive (EU) 2017/828 on shareholder rights (“SRD II”) on remuneration were already covered by the Spanish Companies Act (Ley de Sociedades de Capital) of 2014. However, the Bill published on September 7 (the “Bill”) includes some significant changes.
- Remuneration system for executive directors: The wording of section 529q of the Companies Act is amended to avoid the interpretation (particularly after the Supreme Court judgment of February 26, 2018) that remuneration systems for executive directors in listed companies must be recorded in the bylaws.
- Redefining the content of the remuneration policy: The content of the policy is detailed and developed, and therefore:
- Shareholders’ right to have their say on directors’ pay is strengthened, contributing to greater transparency.
- Some of the current recommendations of the Good Governance Code for listed companies are now legal regulations (for example, linking remuneration of financial and non-financial performance criteria under the new section 529r 3e) of the Spanish Companies Act and Recommendation 58 of the Good Governance Code).
- The content of listed companies’ remuneration policies becomes more uniform. Many listed companies, particularly Ibex-35 companies, already include most of the content set out in the Bill in their policies. However, other listed companies adopt general policies that are less precise in describing their remuneration policies. For example, when describing the criteria for receiving variable remuneration, some policies refer to an agreement reached by the board of directors at the appropriate time. With the new wording of section 529r 3 of the Companies Act, that sort of phrasing would not be possible.
Companies will have to submit their remuneration policy aligned with this new content for approval at the first general meeting held three months after the new act enters into force. In practice, the new remuneration policy will have less impact on financial institutions (since they are already subject to much more demanding sectoral regulations) and on many Ibex-35 companies (that already have detailed policies).
- Temporary exceptions to the remuneration policy: The Bill allows companies to apply temporary exceptions to the remuneration policy when they have set out (i) the procedure to be used, (ii) the components of the remuneration policy that can be suspended, and (iii) the extraordinary conditions under which this temporary exception can be activated. In any case, the measure must be necessary to serve the company’s long-term interests, to guarantee its overall sustainability or to ensure its viability.
- Say on pay. The Bill clarifies what happens when the general meeting rejects the remuneration policy or when the annual director remuneration report (“DRR”) is rejected in its advisory vote. In the former case, the company will keep the policy in force until it submits a new policy at the next annual meeting; in the latter case, it will do so until the next general meeting.
- Changes affecting the annual DRR for financial years ending after December 1, 2020:
- Its content is largely expanded, reflecting the “redefinition” of the remuneration policy. It highlights the required information comparing directors’ remuneration with that of the average employee. On October 12, Circular 1/2020, of October 6, of the Spanish Securities and Exchange Commission, amending Circular 4/2013, of June 12, establishing the annual directors remuneration report templates, among others, was published in the Official Gazette of the Spanish State.
- The directors’ report must be appended, and that point must be confirmed by the auditor.
- It must be communicated to the market as “other relevant information.”
- It must be accessible on the company’s and the Spanish Securities and Exchange Commission’s websites for at least 10 years, unless sectorial regulations require a longer period.
The Bill is currently being processed and will likely be adopted in the last quarter of the year. The period for amendments has been extended until October 21.
Author: Graciela Garrudo.
This post is also available in: Español