Company directors can perform their duties either in return for compensation or free of charge. The articles of association should indicate if directorships are remunerated and, if so, determine the terms and conditions for director compensation. It should be noted that the presumption that an office is not remunerated does not apply to company directors, meaning a directorship is presumed to be exercised in return for compensation.
If the articles are silent on the subject, the general meeting has exclusive authority to determine the level of directors' fees. However, it is important to qualify this general principle.
Firstly, a formal decision by the general meeting is not necessary. It is generally accepted that the general meeting's decision to approve the annual accounts granting director compensation is sufficient, provided however the directors' fees can be clearly identified.
Secondly, the general meeting's exclusive authority extends only to determination of the total com-pensation paid to all directors, not to the allocation of this amount amongst them, which is determined by the board of directors. Of course, the rules governing conflict of interests of the directors must be complied with. In listed companies, which are required by law to establish a remuneration committee, entrusted amongst other things with making proposals to the board of directors on director compensation, there is a framework for this decision-making process.
Thirdly, the general meeting's authority concerns only the directors' fees for the performance of their official duties as director. The board of directors may grant additional compensation to directors for the accomplishment of specific tasks or the performance of daily management functions. Unlike a directorship, membership on the management committee or any other executive committee, daily management or the performance of specific duties can form the object of an employment contract. In other words, for a director's official duties, the fees are determined by the general meeting. For all other duties, the director's compensation is determined, as the case may be, in the employment contract, by the board of directors or by any other corporate organ to which this authority has been dele-gated.
Likewise, when a management agreement has been entered into, containing provisions on a notice period to be observed or compensation to be paid when a term of office is ended, such provisions may only relate to positions other than that of director, pursuant to the general principle that a director may be removed from office at any time without cause.
Finally, if a legal entity serves as director, the compensation of the person appointed to represent it for purposes of the directorship is determined by the entity's board of directors or by any other corporate organ to which this authority has been delegated (while the compensation of the legal entity itself is determined by the general meeting of the company for which it acts as director).
Different forms of compensation are possible, such as fixed or variable salary (a bonus, percentage of turnover, etc.), attendance fees for presence at meetings of the board of directors, participation in the profits through the grant of profit shares, and fringe benefits (the making available of office space or a company car, payment by the company of various expenses, etc.).
Regardless of the means of compensation selected, compensation is only due if the directorship is effectively performed. A totally passive director cannot claim compensation. The compensation must also be proportionate to the activities performed by the director within the company.
The remunerated or non-remunerated nature of a directorship has no bearing on the director's liability. The fact that a directorship is performed free of charge will only rarely come into play, when a court is asked to settle the question of whether a director committed negligence in the performance of his or her office. Moreover, the concept of "free of charge" is interpreted narrowly in the case law.
Director compensation is a delicate topic. On the one hand, the interests of the company must be protected; on the other hand, the compensation must be sufficient to attract, retain and motivate persons with the required profile, who will participate in the company's development and growth. Directors' fees must thus be determined with care, in accordance with the applicable legal rules and in the interest of the company.