How are members of the governing body compensated?

Corporate Governance

Austria Small Flag Austria

The remuneration of supervisory board members is subject to a resolution of the shareholders‘ meeting. Compensation is not obligatory, usually members receive a fixed amount per meeting that should cover their expenses and an annual fee that may vary according to the different functions in the board (chairman, chairman of a committee, simple member etc). Employee representatives are not compensated since they are paid employees anyway.

Brazil Small Flag Brazil

The shareholders’ meeting shall prescribe the aggregate or individual compensation of the members of the board of directors and executive office, including benefits of any kind and representation allowances, taking into consideration their responsibilities, the time devoted to their duties, their skills and professional standing, and the market value of their services. If the shareholders’ meeting approves the aggregate compensation to be paid to the company’s directors and officers, it will fall under the authority of the board of directors to approve the allocation of the compensation between the company’s directors and officers.

If the company’s by-laws set forth a compulsory dividend equal to or above 25 per cent of the net profits, it may establish a share in the company’s profits to the benefit of the company’s directors and officers, provided that the total amount thereof does not exceed the annual compensation of the directors and officers, nor one-tenth of the profits, whichever is lower. Nevertheless, directors and officers shall only be entitled to a share in the profits in a financial year for which the compulsory dividend is paid to the shareholders.

Detailed information on the compensation paid to the company’s directors and officers, including, but not limited to, the breakdown of the compensation (e.g., fixed and variable compensation), the minimum, lowest and average compensation paid, must be disclosed in the company’s reference form. In addition, the companies listed in the Novo Mercado segment must have and disclose their compensation policies.

The remuneration of the members of the fiscal board, besides the mandatory reimbursement for traveling expenses, board and lodgings incurred in their duties, will be fixed by the general meeting which elects them. The remuneration of each member shall not be less than ten per cent (10%) of the average remuneration paid to each director. Benefits, allowances and shares in profits will not be included in that figure.

France Small Flag France

The global amount of remuneration of board members is set by the shareholders, with the allocation among members being decided by the board itself (which may take account of matters such as attendance at board or committee meetings and functions assumed, including chairing the board). No other compensation may be paid to governing board members, except pursuant to work for the company as an employee (in a function distinct from board membership) or a specific temporary assignment.

Germany Small Flag Germany

Compensation of Supervisory Board members is regulated in the Company’s articles of association or follows specific resolutions of the shareholder meeting. It must be appropriate to their tasks and the financial status of the company. Pursuant to the GCGC, if members of the Supervisory Board are granted performance-related remuneration, it should be linked to sustainable growth of the company. Remuneration is disclosed individually in the annexes to the financial statements or the management report of the Company.

Greece Small Flag Greece

Members of the board of directors shall be entitled to receive remuneration or other benefits in accordance with the law and the articles of incorporation and, where appropriate, according to the remuneration policy of the company. A fee or benefit granted to a member of the board of directors which is not governed by law or by the articles of incorporation shall be borne by the company only if approved by the general meeting.

A fee consisting of a share in the profits of the year shall be provided only if this is provided for in the articles of incorporation. The amount of the above remuneration is determined by a resolution of the general meeting. The fee earned from the profits for the year is calculated on the basis of the balance of the net profit remaining after the deduction of the statutory bookings for a statutory reserve and the distribution of the minimum dividend to the shareholders.

For listed companies admitted on a regulated market this paragraph shall be without prejudice to the conditions set out for the remuneration policy of the company (see below).

Remuneration to members of the board of directors for services to the company on the basis of a special relationship, such as an employment contract, a work or a contract, shall be paid following the formalities for compliance with the transparency rules laid down in Articles 99 to 101 of the Law.

The general meeting may authorize a down payment for the period until the next ordinary general meeting. The down payment is subject to its approval by the next ordinary general meeting.

Remuneration Policy for listed companies:

Companies listed on a regulated market are required to adopt remuneration policies for the members of the board of directors and, if any, for the general manager or his substitute. Such remuneration policy shall be subject to the approval of the general meeting and its duration may not exceed four (4) years from the date of its approval by the general meeting. The articles of incorporation may further extend the remuneration policy to (a) to executives as defined in International Accounting Standards and to (b) companies with shares not listed on a regulated market.

In exceptional circumstances temporary derogation from the approved remuneration policy shall be permitted, provided that (a) the remuneration policy defines the procedural conditions under which a derogation from its content may be applied, (b) the remuneration policy defines its elements for which the derogation may apply; and (c) this derogation is necessary for the long-term servicing of the interests of the company as a whole or for ensuring its viability.

The law further sets out the obligatory elements that the remuneration policy should include. A remuneration report is drawn up annually and sets out a comprehensive overview of the remunerations which applied during each financial year. Such reports must include the information set out in detail in the Law. The remuneration report is approved each year by the Annual General Meeting of shareholders and is uploaded on the company’s website for at least ten (10) years.

Lastly, the law provides that following a resolution of the general meeting, the free distribution of shares to the members of the board of directors and the personnel of the company, as well as of its affiliated companies may be decided.

Hong Kong Small Flag Hong Kong

Directors are usually given monetary and non-monetary compensation for their services. Directors may be granted options of new shares and new securities as non-monetary compensation, and if they are directors of a listed company, shareholders’ approval has to be obtained and certain requirements have to be satisfied pursuant to rules 17.03, 17.04(1) of the Main Board Listing Rules and rules 23.03, 23.04(1) of the GEM Listing Rules. In other scenarios, directors’ emolument is not necessarily required to be approved by the shareholders under the Companies Ordinance, but the Model Articles provides that emoluments of the directors’ qualifying services, which may take any form, shall be determined by the company at a general meeting (Article 28). If the company is a listed company, formal and transparent procedure has to be adopted when setting policy on executive directors’ remuneration and all directors’ remuneration packages, and when reviewing and approving remuneration proposal. Paragraph B.1.1 of the Corporate Governance Code also requires the remuneration committee of a company to consult the chairman of the board and/or the chief executive officer about the remuneration proposals for other executive directors, and if necessary, seek independent professional advice.

As required by section 383 of the Companies Ordinance, when preparing financial statements, a company should disclose in the notes to the financial statements, the information prescribed by Companies (Disclosure of Information about Benefits of Directors) Regulation (Chapter 622G of the laws of Hong Kong), including but not limited to the aggregate amount of the emoluments paid to or receivable by the directors in respect of their qualifying services, and if any such emoluments consist of a benefit otherwise than in cash, the nature of that benefit, and the aggregate amount of the payments or benefits in respect of the termination of directors’ services made or provided to or receivable by the directors or former directors of the company.

Japan Small Flag Japan

For a company with statutory auditors, the remuneration of directors must be approved at a shareholders' meeting. In practice, most companies approve only a maximum aggregate amount of remuneration for all directors and delegate the board of directors to determine the amount for individual directors, and the board determines the distribution of remuneration among the directors, or further delegates these responsibilities to one of the directors (typically, the representative director).

For a company with an audit and supervisory committee, the remuneration of directors must be approved at a shareholders' meeting, and that of members of the audit and supervisory committee must be approved separately from that of other directors. In practice, most companies approve only a maximum aggregate amount of remuneration for all directors who are members of the audit and supervisory committee, and the members of the audit and supervisory committee determine the distribution of remuneration among themselves.

In the case of a company with three committees, the compensation committee determines the remuneration of each director and executive officer in accordance with the remuneration policy prescribed by the committee. The approval of a shareholders' meeting is not required.

Historically, directors' remuneration has consisted mainly of fixed cash compensation, and performance-based remuneration has accounted for a relatively small portion of total remuneration. Equity-based incentives such as stock options remain unpopular. The CGC encourages listed companies to include incentives in remuneration packages such that they reflect mid to long-term business results and potential risk, in order to promote healthy entrepreneurship.

Portugal Small Flag Portugal

In limited and stock companies, compensation is in general established by the shareholders.

In stock companies, such powers may be delegated in a committee elected by shareholders (which may be assisted by a specialised committee with advisory powers). However, in the two-tier model and unless otherwise provided in the by-laws, it is a responsibility of the supervisory board concerning the executive board (or of a specialised committee set up by the former).

In addition to a fixed compensation, executive board members may be – and are frequently – entitled to variable compensation. See § 13 below.

South Korea Small Flag South Korea

Under the KCC, the maximum remuneration of directors must be determined by the GMS by ordinary resolution, unless it is already provided for under the AOI. The amount of director remuneration need not be determined for each director at the GMS or in the AOI; instead, in practice, the aggregate ceiling will generally be determined at the shareholders’ meeting (or in the AOI), with the individual director remuneration being delegated to and determined by the BOD.

The fairness of director compensation is an issue that has received increasing attention in Korea. If the amount of remuneration is deemed excessive in light of the performance of the person concerned or the Company’s financial condition, the decision of the BOD approving such payment may be subject to challenge as being contrary to the interests of the Company.

Under the Financial Services and Capital Markets Act (“FSCMA”), companies that are required to submit a business report to the Financial Services Commission (“FSC”) and the Korea Exchange (“KRX”) must also include in their annual and semi-annual report, information on the amount and calculation method of the compensation made to (1) each director or statutory auditor who received KRW 500 million or more and (2) each officer who received KRW 500 million or more and the top 5 compensated personnel in the relevant business year (or half-year for semi-annual reports).

Switzerland Small Flag Switzerland

A cash remuneration of board members is standard, whereby several companies offer (mandatory or optional) stock participation schemes. Such remuneration covers board meetings as well as committee work. No bonuses are paid at the level of the board. For the executive management, see question 13.

Pursuant to the OaEC, listed companies are required to annually submit the board’s proposal on the compensation of the board members, the senior management and the advisory board to the shareholders’ meeting for a binding vote.

United States Small Flag United States

Directors of corporations are normally compensated through cash payments, equity awards and/or a combination of the two. Most commonly, a company will set an annual cash retainer for directors. This retainer may be supplemented by additional payments for meeting attendance and chairing the board or a committee. Often, directors are also compensated through equity grants, including stock options in order to align the directors’ interest with those of the corporation’s shareholders. Many boards require directors to hold a certain multiple of their cash retainer in the company’s equity, and some companies require recently elected directors to hold their entire annual retainer as equity in the company until the director meets the mandated equity threshold.

Compensation practices for the governing body of an LLC may reflect those of a corporation, or the members of the governing body may establish alternative compensation structures.

United Kingdom Small Flag United Kingdom

Boards generally set remuneration for their own members. For premium listed companies, pay is set by a remuneration committee made up of a minimum of two or three independent directors (depending on the size of the company). This committee should be responsible for setting pay for the chair, the executive directors and senior non-director level management. It should also review remuneration policies and the alignment of incentives and awards with culture and take these into account when setting pay levels.

The UK Corporate Governance Code sets out several general principles as well as more detailed provisions on how remuneration policies should be formulated and implemented.

Directors of premium listed companies must also prepare a remuneration policy at least once every three years. The policy is subject to a binding shareholder vote (on a simple majority). If the policy is not approved by shareholders, the company may:

(A) continue to operate according to the last policy to have been approved by shareholders;

(B) continue to operate according to the last remuneration policy to have been approved by shareholders and seek separate shareholder approval for any specific remuneration or loss of office payments which are not consistent with policy; or

(C) convene a general meeting and put forward the policy (which may be revised since the annual general meeting) for approval (this is the only possible option if the company has never had a remuneration policy approved at an annual general meeting).

Companies listed on the premium and the standard segments are required to pass an ordinary resolution approving the directors' remuneration report for the relevant financial year. The vote is advisory but where the resolution is not passed or, even if it is passed but there is a significant vote against, companies have generated negative press comment. The Investment Association keep a public register of companies which have suffered significant shareholder rebellions.

Canada Small Flag Canada

Director compensation is determined by the board of directors or a committee thereof and shareholder approval of such remuneration is not required. As a matter of transparency and disclosure, in accordance with applicable securities laws, public companies are required to disclose the processes by which a board of directors determines its compensation. Director compensation typically includes fees (per meeting and/or as an annual retainer, which may be higher for the chair of the board or any committee) and may include share-based compensation. It is increasingly uncommon for directors to be compensated with stock options.

Italy Small Flag Italy

Board members may be compensated in a variety of ways, ranging from a fixed annual remuneration, to stock option plans, from stock grants, to direct profit-sharing mechanisms.

It is worth noting that the compensation shall be resolved upon by the shareholders or quotaholders’ meeting, even though the board itself may grant further compensation to the benefit of the directors holding particular offices (e.g. managing director, chairperson, committee members, etc.), provided that the shareholders or quotaholders’ meeting shall in any case have the right to set out an aggregate maximum amount (Art. 2389 ICC).

Turkey Small Flag Turkey

As to TCC, financial rights including the attendance fee, wage, bonus, premium and percentages of annual profit can be granted to the board members provided that the amounts of them are determined by AoA or GA resolution (TCC, article 394).

With regards to CPG, the profit share, share options or the schedules related to the company’s performance payment cannot be taken into consideration in the remuneration of the independent board members. In so far, the remuneration of the board members must be sufficient to ensure their independency (CPG, article 4.6.3). Furthermore, the remuneration paid and also the other advantages granted for the board members and the members having the administrative responsibility shall be announced to the public by annual activity report (CPG, article 4.6.5).

Luxembourg Small Flag Luxembourg

Compensation of the members of the board is up to the general meeting of shareholders (or sole shareholder as applicable). If there is no provision in the articles of association governing the remuneration and no remuneration is contractually agreed, the mandate will be without remuneration.

For qualifying listed companies, the LSE Principles indicate that the company shall establish a fair remuneration policy for its directors and the members of its executive management that is compatible with the long-term interests of the company. The remuneration must reflect the level of quality and skills required of members of the board and must be structured in such a way as to protect the company against taking excessive risks.

Ukraine Small Flag Ukraine

The GM adopts regulations regarding compensation of directors in compliance with the rules laid down by the Commission. In public JSCs, the GM should annually review such regulations and approve reports on the remuneration of board members.

Generally, the compensation of board members has fixed and variable elements. The latter usually depend on the profitability of the company and the KPIs of each director. The remuneration structure of every director is specified in his/her employment contract subject to the approval of the GM.

Australia Small Flag Australia

The Corporations Act provides that directors of a company are to be paid the remuneration that the company determines by shareholder vote. However, this general rule (and any other matters relating to director remuneration) can be replaced by the provisions of the company's constitution. In practice, the board (or, for listed companies, often a remuneration committee) typically recommends the level of remuneration which is then approved by the shareholders.

Typically, non-executive directors are paid directors fees. Executive directors (directors who are also employees of the company) do not typically receive additional remuneration for serving on the board.

The ASX Governance Principles recommend that the structure of remuneration for non-executive and executive directors of ASX listed companies should be clearly distinguished. Non-executives should receive fees. They should not participate in executive incentive plans, nor receive options, bonus payments, or termination benefits other than superannuation. Executive remuneration packages (including for executive directors) should comprise a mixture of fixed and performance-based remuneration. Equity-based remuneration may be appropriate for executives, within guidelines suggested to reduce ‘short-termism’. Termination payments, if any, should be confined to defined circumstances agreed up front, within statutory limits.

Updated: May 20, 2019