The Portuguese law provides for the possibility of commercial companies entrusting to a specialized committee, the “Remuneration Committee”, the task of defining a policy and objectives for the fixing of the remuneration of the management body, taking into account the interests of the company and the limits provided for in the law . The Remuneration Committee and its members are, therefore, responsible for devising a remuneration policy applicable to the company’s directors, but also extendable to the members of the remaining corporate bodies.
The increasing importance of the Remuneration Committee in corporate governance
In corporate governance the Remuneration Committee (sometimes known as salary commission/committee) has been achieving growing and recognised relevance, inasmuch as it enables greater specialisation in the handling of an ever increasingly sophisticated question.
The remuneration setting process becomes more transparent and immune from possible conflicts of interest that could arise should the management body be requested to establish the remuneration to be paid for the performance of its duties .
In that connection, the Remuneration Committee has been the subject of constant legislative effort, not only at national level, by organisations such as the Securities Market Commission (CMVM) and the Bank of Portugal, but also at Community level, by means of recommendations and directives issued by the competent Community institutions.
The composition and independence of the Remuneration Committee
It should be noted that, in accordance with Código das Sociedades Comerciais (“CSC”) (Companies Code), the fixing of the remuneration may be entrusted to the General Meeting or to a committee appointed by it. Accordingly, as a rule, the Remuneration Committee is a facultative body (save for certain exceptions, such as large credit institutions), which may be provided for in the by-laws of the company or instituted through a specific resolution of the General Meeting of the company.
Although no maximum number of members is established for the Remuneration Committee, in Portugal these committees usually work with approximately three members, since too large a number of members would end up jeopardising the efficiency of this body.
At present, the law does not establish a limitation with regard to the choice of the members of the Remuneration Committee. However, the members of the Remuneration Committee must, above all, try to be independent, in order to guarantee the desired transparency in the definition of the remunerations policy of the company . Incidentally, the Securities Market Commission (CMVM) recommends that, in listed companies “All the members of the Remuneration Committee or similar [should be] independent vis-à-vis the executive members of the administrative body and [include] at least one member knowledgeable and experienced in remuneration policy matters .”.
It has been understood that, from the moment of their designation , the members of the Remuneration Committee are subject to a set of legal duties arising from the task that they now perform, namely:
- The duty to fix the remuneration of the members of the corporate bodies in question;
- The duty to establish and regularly review the remuneratio n policy;
- The duty to monitor the information provided by the company concerning remuneration;
- The duty to provide information to the supervisory body and, if necessary, to the General Meeting on the activities it pursues.
In addition to these specific duties, that are the result of its function, the members of the Remuneration Committee are also subject to general duties of care and loyalty, albeit adapted to their position. As a result of this general duty of care, the members of the committee have the duty to obtain the necessary information to draft and implement a remuneration policy suited to the company’s reality.
The competence of the Remuneration Committee – Concurrent or exclusive competence?
In accordance with the CSC, it is for the Remuneration Committee “(…) to fix the remuneration of each director, taking into account the tasks performed and the economic situation of the company”. Accordingly, the delegation of the remuneration powers by the General Meeting is restricted to the fixing of the re muneration, and the Remuneration Committee does not have any powers beyond its function. It should be noted that, despite the fact that the CSC expressly mentions “directors”, the doctrine is inclined to consider that the Remuneration Committee decides on the remuneration policy of all corporate bodies.
It should also be noted that the fixing of the remuneration of the employees and other workers is not the competence of the Remuneration Committee. Indeed, the fixing of the remuneration of the employees and other workers is considered to be management- related and, as such, the same lies within the competence of the administrative body .
On the other hand, the approval of supplementary pension and pre -retirement arrangements, these being long term incentives considered as a form of retribution of corporate bodies members, shall also be the competence of the Remuneration Committee.
As mentioned above, the delegation of powers of the Remuneration Committee may be underpinned by a resolution of the General Meeting or a clause of the by-laws. In the first case, it is understood that the General Meeting may give the Remuneration Committee instructions or directives, inasmuch as the latter retains the competence (albeit concurrent) concerning remuneration. Incidentally, this duality becomes evident given the possibility of the General Meeting calling back and exercising the delegated powers, or even replacing, substituting or revoking the resolutions of the Remuneration Committee. On the contrary, when the Remuneration Committee is established from the outset in the by-laws of the company, its competence for establishing the remuneration policy must considered exclusive.