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Corporation Law Jurisprudence · Podcast Episode 9 · 16:49
Directors’ Compensation: May Sweldo Ba ang Board of Directors?
Do directors get a salary, and may the board give itself compensation or a bonus?
A school corporation in Iloilo City passed a board resolution giving its Chairman ₱9,000 a month and its Vice-Chairman, Treasurer and Secretary ₱3,500 a month each, retroactive to June 1, 1985. The officers paid were themselves members of the board. The minority stockholders objected, the criminal cases that followed ended in acquittal, and the minority went to the Supreme Court to have the pay returned. Atty. Jeric Dave Gallardo and Sweet Zel Grace Porras read all four paragraphs of Sec. 29 of the Revised Corporation Code and walk through three Supreme Court decisions that ended three different ways: officers’ pay that stood, allowances a board voted for its own members that had to be refunded, and directors’ bonuses disallowed because there was no net income.
Three cases, three answers
Same question. Different facts. Different results.
The rule
As directors, directors receive no compensation except reasonable per diems, unless the by-laws fix their compensation or the stockholders representing at least a majority of the outstanding capital stock (or a majority of the members) grant it.
Under Sec. 29 of the Revised Corporation Code (formerly Sec. 30, B.P. Blg. 68), the total yearly compensation of directors may not exceed 10% of the preceding year’s net income before income tax, directors and trustees may not participate in fixing their own per diems or compensation, and corporations vested with public interest must report each director’s total compensation every year. Every case in this episode applied the old law; no Supreme Court decision has yet applied Sec. 29.
Recap
- What Sec. 29 says: in the absence of a by-law provision fixing their compensation, directors receive no compensation in their capacity as such, except reasonable per diems. The stockholders representing at least a majority of the outstanding capital stock, or a majority of the members, may grant compensation and approve the amount at a regular or special meeting.
- What is new: not the 10% cap, which was already in Sec. 30 of B.P. Blg. 68. New in Sec. 29 are the rule that directors or trustees shall not participate in determining their own per diems or compensation, and the annual report of each director’s or trustee’s total compensation that corporations vested with public interest must submit to their shareholders and the SEC.
- A director’s pay and an officer’s pay are different. In WIT vs. Salas, monthly pay that board members received as Chairman, Vice-Chairman, Treasurer and Secretary, with a basis in the Articles and By-Laws, did not violate old Sec. 30. In Central Cooperative Exchange vs. Tibe, allowances the board voted for its own members, a power the by-laws reserved to the stockholders, had to be refunded.
- The 10% cap: the total yearly compensation of directors may not exceed 10% of the net income before income tax of the preceding year. In Gonzaga vs. COA, a bonus was compensation, and with no net income in the preceding year, the Court upheld the disallowance of the directors’ bonuses despite the Monetary Board’s approval.
- The open question: old Sec. 30’s cap applied to the compensation of directors “as such directors,” and WIT held that it did not reach their pay as officers. Sec. 29’s cap sentence no longer has those words, and the Supreme Court has not yet decided whether the cap now counts a director’s pay as an officer, or whether the new bar on participating in one’s own pay reaches an officer’s salary.
Bar tip
Start with Sec. 29 of the Revised Corporation Code. As directors, directors get only reasonable per diems, unless the by-laws provide for their compensation or the stockholders representing at least a majority of the outstanding capital stock approve it. The total yearly compensation of directors may not exceed 10% of the net income before income tax of the preceding year, and directors may not participate in fixing their own per diems or compensation. Then remember WIT vs. Salas: pay for services as an officer was not compensation “as such directors” under old Sec. 30.
The law
Revised Corporation Code (R.A. No. 11232, February 20, 2019)
“In the absence of any provision in the bylaws fixing their compensation, the directors or trustees shall not receive any compensation in their capacity as such, except for reasonable per diems: Provided, however, That the stockholders representing at least a majority of the outstanding capital stock or majority of the members may grant directors or trustees with compensation and approve the amount thereof at a regular or special meeting.”Sec. 29, Compensation of Directors or Trustees, first paragraph (formerly Sec. 30, B.P. Blg. 68)
“In no case shall the total yearly compensation of directors exceed ten percent (10%) of the net income before income tax of the corporation during the preceding year.”Sec. 29, second paragraph (the 10% cap, already in old Sec. 30)
“Directors or trustees shall not participate in the determination of their own per diems or compensation.”Sec. 29, third paragraph (new)
“Corporations vested with public interest shall submit to their shareholders and the Commission, an annual report of the total compensation of each of their directors or trustees.”Sec. 29, fourth paragraph (new)
“In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.”For comparison: old Sec. 30, Compensation of directors, B.P. Blg. 68 (Corporation Code of 1980)
Full text (SC E-Library) · Signed copy (Official Gazette) · Old Sec. 30, B.P. Blg. 68 (LawPhil)
Chapters
- 0:00Cold open: a school board’s monthly pay for its own officers
- 1:47The law: Sec. 29 of the Revised Corporation Code (directors’ compensation)
- 4:17Case 1: WIT vs. Salas (officers’ pay; petition denied)
- 7:32Case 2: Central Cooperative Exchange vs. Tibe (refund ordered)
- 10:48Case 3: Gonzaga vs. COA (bonuses disallowed: no net income)
- 13:19Three common myths
- 14:13Why did the answers differ?
- 15:12Recap and bar tip
Cases cited
Each card opens the full text of the decision, or our case digest where we have written one.
Next episode
Who is not allowed to be a director?
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