General Rule: No Compensation Unless Authorized
The compensation of directors of trustees of a corporation are governed by Sec. 29 of Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines which provides:
“SEC. 29. Compensation of Directors or Trustees. – 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.
In no case shall the total yearly compensation of directors exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.
Directors or trustees shall not participate in the determination of their own per diems or compensation.
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.”
As enunciated above, directors or trustees of a corporation are not entitled to any salary, wage, or compensation for their services in such capacity unless specifically provided in the bylaws. In the absence of such provision, they may only receive reasonable per diems for attendance at meetings.
This reflects the principle that directorship or trusteeship is generally considered a fiduciary role, not a salaried position. The law aims to prevent self-dealing and protect the corporation from potential abuse of power by its governing board.
Exception: Approval by Stockholders or Members
Despite the general rule, Section 29 allows for an exception. Directors or trustees may be granted compensation if approved by stockholders representing at least a majority of the outstanding capital stock, or by a majority of the members in the case of nonstock corporations. This approval must be made during a regular or special meeting called for that purpose.
This mechanism ensures transparency and accountability, as compensation must be subject to the scrutiny and consent of the corporation’s owners or members.
Limitation on Total Compensation
To further safeguard corporate interests, the law imposes a cap on total yearly compensation. Specifically, the total compensation of directors must not exceed ten percent (10%) of the net income before income tax of the corporation during the preceding year.
This statutory ceiling prevents excessive remuneration and aligns director compensation with the financial performance of the corporation.
Prohibition Against Self-Approval
Another important safeguard is the prohibition against directors or trustees participating in the determination of their own compensation or per diems. This rule reinforces the fiduciary nature of their role and ensures that decisions regarding compensation are made impartially.
Additional Reporting Requirements for Public Interest Corporations
Corporations vested with public interest—such as publicly listed companies, banks, and other entities—are required to submit an annual report to their shareholders and to the Securities and Exchange Commission (SEC). This report must disclose the total compensation received by each director or trustee, promoting transparency and public accountability.
Summary
In summary, directors and trustees of a corporation are not automatically entitled to compensation for their services. Any remuneration must be authorized by the bylaws or approved by the stockholders or members, and must not exceed 10% of the corporation’s net income before tax. Moreover, directors and trustees cannot approve their own compensation, and corporations with public interest obligations must disclose such compensation annually.
These provisions under Section 29 of RA 11232 are designed to uphold corporate integrity, protect stakeholders, and ensure that governance remains fair and accountable.
About Nicolas and De Vega Law Offices
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