Compensation of Directors

October 28, 2003 SEC OPINION NO. 52-03 Atty. Dominga F. Calanglang Ground Floor, Park Tower 628 Tomas Mapua Street Santa Cruz, Manila SUBJECT : Compensation of Directors M a d a m : This refers to your letter dated 20 October 2003 requesting opinion on the issue whether or not the members of the Board of Directors of Chemetall Philippines Co. Ltd. Inc. are entitled, albeit belatedly ,to receive compensation as provided in the company's by-laws. You stated that over the years, the said company has been declaring cash dividends. We answer your query on the positive. Section 30 of the Corporation Code of the Philippines provides: "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 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 (1.0%) percent of the net income before income tax of the corporation during the preceding year. (n)" HTaSEA Under the afore-quoted section, there are two ways by which members of the board of directors can be granted compensation aside from reasonable per diems :(1) when there is a provision in the by-laws fixing their compensation; and, (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special meeting agree to give the directors compensation. [ Western Institute of Technology Inc. vs. Salas ,G.R. No. 113032, August 21, 1997] Now, Section 8, Article III of the By-Laws of the subject company reads: "Section 8. Compensation By resolution of the Board, each director shall receive a reasonable per diem allowance for his attendance at each meeting of the Board. As compensation, the Board shall receive and allocate an amount of not more than ten percent (10%) of the net income before income tax of the corporation during the preceding year .Such compensation shall be determined and apportioned among the directors in such manner as the board may deem proper, subject to the approval of the stockholders representing at least a majority of the outstanding capital stock at a regular or special meeting of the stockholders." Based on the foregoing provision in the by-laws, the directors of Chemetall Philippines Co. Ltd. Inc. are entitled to receive compensation. The amount of compensation of directors shall be fixed by the board of directors subject to the approval of the stockholders representing at least a majority of the outstanding capital stock at a regular or special meeting of the stockholders. However, the total amount of compensation of the members of the board shall not exceed ten percent (10%) of the net income of the corporation before income tax during the preceding year. In our view, the compensation of directors earned during the current year may be paid on the following year. The reason is that the annual net income for the current year will still have to be determined in the following year. [S. Tabios, Action Guides For Corporate Legal Management, 1991, p. 151, citing Batasan Proceedings, March 11, 1980] We hope we satisfactorily answered your query. aIAHcE Very truly yours, (SGD.) RUSSELL I. ILDESA Office-in-Charge Office of the General Counsel