Re : Compensation/salaries/Per Diem of CorporateOfficers who are also membersof the Board of Directors

May 4, 2004 SEC OPINION NO. 32-04 Re : Compensation/salaries/Per Diem of Corporate Officers who are also members of the Board of Directors Muntinlupa Polymedic, Inc. Muntinlupa City Attention: Geanie Cerna-Lopez, M . D . Corporate Secretary M a d a m : This refers to your letter dated 29 March 2004 requesting opinion or guidelines on salaries/compensation/per diem of the officers of your corporation who are also members of your Board of Directors. Sec 10 Article III of your By-laws provides: "Directors, as such, shall receive compensation as may be determined by the Board of Directors subject to the approval by the stockholders representing at least a majority of the outstanding capital stock." In this connection, please be informed that compensation is an issue of business judgment to be questioned only in case of clear abuse. 1 In the absence of a special law on the matter, the following provision of the Corporation Code shall apply: "SECTION 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 stockholders representing at least 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." (Emphasis supplied) In connection with the said provision of law, the Commission consistently ruled that: "...the Board of directors are entitled to compensation only if there is an express authority in the by-laws or should there not be any such provision in the by-laws, by a stockholders' resolution granting the same. Otherwise, they cannot, among themselves award salaries or compensation, except for reasonable per diems . As to what constitutes "net income before income tax of the corporation during the preceding year",the Commission, for purposes of the 10% limitation under the aforecited provision, had previously opined on the basis of the Batasan deliberation on the matter that the computation thereof shall be based on the "net income before income tax of the year during which the directors have served as such" (Opinion dated May 21, 1992 addressed to Mr. O.P. Victorino) As to what covers "total yearly compensation",the Commission further opined in the same SEC opinion cited above that "usually, it includes salaries/remuneration, bonuses/gifts, or any incentive compensation for services rendered to the corporation." Relative to compensation of officers, since, the Board of Directors appoints/elects the corporate officers, ordinarily then and as manager of the corporate affairs, it is within the Board's power to fix the salaries of the officers by way of a resolution to that effect. If there is such an authority, a director who is also an officer may collect a salary for his services done as an officer. The reason is that the offices of directors and officers have different functions. If a resolution fixing the salaries of officers is not tainted with irregularity and is not for the purpose of disposing of the profits of the corporation, the only question to be determined is whether the salary fixed is reasonable. Considering that the board of directors and officers have different functions, the Commission opined that the above 10% limitation excludes salaries for services rendered by officers . 2 (Emphasis ours) Other than Section 30 of the Corporation Code and previously rendered legal opinions, the Commission does not have a guideline on the amount or percentage of salaries that may be given to corporate officers. Further, the foregoing opinion is based namely on facts disclosed in your query and relevant solely to the particular issues raised therein and shall not be used in the nature of a standing rule binding upon the Commission in other cases whether similar or dissimilar circumstances. 2004cdtai For your information and guidance. SADECI Very truly yours, (SGD.) VERNETTE G. UMALI-PACO General Counsel Footnotes 1. SEC Opinion dated 19 August 1992 addressed to Ms. Ma. Lourdes S.M. Estanislao. 2. SEC Opinion dated November 28, 1995 addressed to Director Candon B. Guerrero citing SEC Opinion dated August 19, 1992 addressed to Ms. Ma. Lourdes S.M. Estanislao).