Interpretation of Section 30 of the Corporation Code on Compensation of Directors

DOJ OPINION NO. 057 , s. 2010 November 18, 2010 Atty. Amador M. Monteiro Senior Vice President/Chief Legal Counsel Social Security System East Avenue, Diliman Quezon City Dear Atty. Monteiro : This has reference to your request for opinion on the query stated therein relating to the interpretation of Section 30 of the Corporation Code of the Philippines 1 which pertinently reads, thus: HcSDIE Sec. 30. Compensation of directors. 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 stockholder representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. 2 . . . Specifically, opinion is requested on whether or not the money from profit sharing scheme and/or grant of bonuses and the Board of Director's meeting per diem received by Social Security Service (SSS)-nominated directors from companies and/or corporations where the SSS has investments should be remitted to the SSS or should be personally accepted by the Director. The request, it appears, was precipitated by the request of the Vice-President of the Capital Markets Division, SSS Equities Department, for opinion on the appropriate practice and policy relative to the compensation and benefits received by an SSS-nominated director to the Board of Directors of a company where SSS has investments. You state that while the SSS Corporate Legal Department has already rendered an opinion on the query raised by the Capital Markets Division Vice President, the newly appointed President and Chief Executive Officer of SSS deemed it appropriate to seek legal confirmation on the matter from this Department pursuant to Section 6 (b) of R.A. No. 1161, as amended, which designates the Secretary of Justice as the ex-officio counsel and legal adviser of the SSS. Although, in line with settled precedents, the Secretary of Justice does not pass upon issues which, as in this case, not only affects the substantive rights of private parties, 3 hence, can be the subject of court litigation, 4 but also involves the interpretation of accounting and auditing rules and regulations which properly falls within the jurisdiction of the Commission on Audit (COA), 5 we would like to state some relevant observations for your enlightenment. It is basic in statutory interpretation that when the words and phrases of the statute are clear and unequivocal, their meaning must be determined from the language employed and the statute must be taken to mean exactly what it says ( Baranda vs. Gustilo , 165 SCRA 757, 770, citing cases). The reason is because when the law is clear, interpretation does not apply only application ( Pascual vs. Pascual-Bautista , 207 SCRA 561, 568). 6 ATcaID Section 30, quoted earlier, is clear and categorical. When a corporation fails to exercise its authority 7 to provide in its by-laws provision fixing the compensation of its directors, only reasonable per diems, not compensation, may be given said directors, unless, in the meantime, the corporation's stockholders decided to grant them compensation at a stockholder's meeting. In a 1968 ruling, the Supreme Court said: Per diem , the dictionary definition tells us, is "a daily allowance" given "for each day he (an officer or employee) was away from his home base". It would seem to us that per diem is intended to cover the cost of lodging and subsistence of officers and employees when the latter are on duty outside of their permanent station. 8 Later, the same Court explained: A "per diem" usually signifies a reimbursement of expenses incurred in the performance of one's duties. If employed in a statute in the concept of remuneration, however, there must be, to justify an additional compensation, a specific law that so provides. Otherwise, fidelity to the constitutional demand against double compensation is lacking. 9 Applied in the instant case, per diems given by firms to SSS-nominated directors may be accepted directly by the directors the same being in the nature of reimbursement or allowance for the expenses incurred by him in the performance of his functions. The same goes with the remuneration provided in the corporation's by-laws or granted pursuant to the action/desire of the firm's stockholders. Anent the money received pursuant to the corporation's profit-sharing scheme and the bonuses awarded, the answer would depend upon the nature of the scheme and the purpose of the bonuses granted. It must be noted that a profit-sharing system or scheme is not limited to investor but may involve an employee of the firm which can, pursuant to the scheme, also be given a share in the profits of the business establishment. If the scheme is grounded upon the investments made, then, the director concerned must surrender or remit to the SSS the money received by reason thereof. The same is true with the bonuses and other benefits received by the director: if the reason for the grant is the work performed by the director, unless the same would amount to double compensation, we think the director can directly accept the same; otherwise, no. This is true especially considering Section 54 of the Government Accounting and Auditing Manual which is equally clear and explicit. TcSCEa However, by virtue of an Executive Order issued by President Benigno Aquino III, the grant of allowances, bonuses, incentives, and other perks to members of the board of directors/trustees of Government-Owned and Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs), except reasonable per diems, is suspended until December 31, 2010, pending the issuance of new policies and guidelines on the compensation of these board members. 10 Our foregoing comments, notwithstanding, we suggest that you elevate the matter to the COA which is in the best position to act thereon or wait for the issuance by the Task Force on Corporate Compensation (TFCC) created under Section 7 of E.O. No. 7 of new guidelines on the compensation of the board members. Please be guided accordingly. Very truly yours, (SGD.) LEILA M. DE LIMA Secretary Footnotes 1. Batas Pambansa Blg. 68. 2. Stress supplied. 3. Sec. of Justice Op. Nos. 42, 41 & 40, current series. 4. Ibid. , Nos. 25, 22 & 16, s. 2009. 5. Sec. 2, Art. IX-D, 1987 Constitution. 6. Op. cit., No. 23, current series; Nos. 17, 10 & 9, s. 2009; Nos. 80, 63 & 57, s. 2008. 7. Sec. 47 (5), B.P. Blg. 68. 8. Lexal Laboratories vs. National Chemical Industries Workers' Union-PAFLU , 25 SCRA 669. 9. Peralta vs. Mathay , 38 SCRA 260. 10. Section 10 of Executive Order No. 7, Directing the Rationalization of the Compensation and Position Classification System in the Government Owned and Controlled Corporations and Government Financial Institutions, and for Other Purposes dated 8 September 2010.