Controlling Directors' Pay in English Law and Spanish Law
| Published date | 01 December 1995 |
| Author | Huerta Viesca,Charlotte Villiers,Maria Isabel |
| DOI | 10.1177/1023263X9500200405 |
| Date | 01 December 1995 |
| Subject Matter | Article |
Charlotte Villiers *
Maria Isabel
Huerta Viesca **
Controlling Directors' Pay in English Law and
Spanish Law
§1. The Social Context of Directors' Pay in the United Kingdom and in
Spain
The remuneration of company directors is the subject of heated debate in the United
Kingdom. The general perception, in the light of wide press coverage, is that executives
of large companies are overpaid. Consequently, English company law now faces the
challenge of controlling directly the level of pay that directors receive. Spanish company
law has long had rules which aim to limit the rewards of directors. Furthermore, there
is, currently, less bad publicity in Spain regarding directors' pay, although this does not
necessarily indicate absence of a problem. In this article we shall address the issue of
controlling executive remuneration from our different legal view points. Compared to
the English law on this subject, which has little direct regulation, Spanish law provides
anumber of responses to the questions being discussed in the United Kingdom. For the
Spanish law, which does regulate remuneration, the English debate provides new per-
spectives and possibilities for Spanish legal research. As we shall see, despite the
different legal cultures and despite the substantive differences in the manner of regula-
tion the problems remain fundamentally the same in both systems. The potential sol-
utions to the problem of controlling remuneration may also be common to both systems.
The current public opinion in the United Kingdom is that the behaviour of directors and
their levels of pay in large companies are not controlled adequately. There are two
fundamental reasons for this preoccupation: first, there are some public companies
which have their origins in privatized public utilities, which have prompted complaints
*Lecturer in law, University of Sheffield and visiting lecturer at the Faculty of Law, University of
Oviedo.
** Abogado ICA de Oviedo, Profesora Asociada in Commercial Law, Faculty of Law, University of
Oviedo. The authors wish to thank Professor Tony Prosser for comments on anearlier draft.
MJ 2 (1995) 377
IControlling Directors' Pay in English Law and Spanish Law
of poorer services for consumers while the directors extract greater amounts for them-
selves. 1Secondly, as in all periods of economic decline, the differential between rich
and poor has grown, giving rise to political friction. 2
The government's first response was to express the opinion that the law does not need
to be altered and that it provides sufficient protection against abuse in the context of
pay. 3However, in February 1995 it set up a Committee of Inquiry to analyse, explain
and offer suggestions for resolving the lack of control over directors' pay in the
privatised utilities. 4The Confederation of British Industry also set up the 'Greenbury
Committee' with similar terms of reference. 5
InSpain, meanwhile, such a social debate does not currently exist, neither in the press
nor in the companies themselves. Unlike in the UK where the press appears to report
daily on the large pay rewards of directors, in Spain the public is less exposed to 'such
press criticism. Among shareholders there also seems to be a general lack of interest
in the issue, despite the existence of considerable abuse. 6On the other hand, the Span-
ish legislature appears to have been more interested in the question of directors' pay,
as we may observe in the new law relating to 'Sociedades de Responsabilidad
1.
For
example, at British Gas Pic the Chief Executive received a 75 %increase in pay late in 1994. The
press gave wide publicity to this increase, presenting it as the general situation in public companies.
This situation has given rise to public criticism demanding that the Government address the problem.
See for example: The Guardian, 7th January 1995. See also Robert Preston, 'Greenbury "will not curb
utility chiefs" pay', Financial Times, 13 March 1995; and Philip Bassett, 'Gas Watchdog rejects pay-
setting role', Times, 26 April 1995, page 23.
2. See, Goodman and Webb, For Richer, For Poorer, (Institute of Fiscal Studies, 1994). See also Owen
Bowcott 'Champagne pay rises have been adding insult to injury for those with low pay' , The Guardi-
an, 1st March 1995, page 3, in which Chris Pond, director of the Low Pay Unit is reported to have
said 'The differential between low pay and top pay is now worse than when records began in 1886'.
3. As stated by the Prime Minister, John Major, in the House of Commons: 250 HC Debs, col. 465, (22
November 1994).
4. Employment Committee, 3rd Report, Session 1994-95, HC Paper 159, Remuneration
of
Directors and
Chief Executives
of
Privatised Utilities.
5. Greenbury Committee, Directors' Remuneration -Report
of
a Study Group chaired by Sir Richard
Greenbury 17 July 1995, (Gee Publishing, 1995).
6. For example, in the daily newspaper, Expansion, 27 March 1995, reference is made to the general
meeting of shareholders in the Banco Central Hispano, in which it is reported that shareholder inter-
vention was generally moderate, even in reaction to a reduction in dividends by 40 %while the direc-
tors made gains in their pay by a figure of 11.65 %. The report claims that only 11 out of 4,000
shareholders questioned the situation. On the claim of considerable abuse, see, Eduardo Polo, La
Reforma de la Sociedad de Responsabilidad Limltada, (Dykinson
S.A.,
1994), in which Polo refers
to the abuses detected recently in relation to chairmen and boards of directors 'who have made pacts
for exorbitant remuneration and indemnification which do not only breach the articles of association
but at the same time escape the control of the general meetingbecause they are usually pacts made with
the management organ of the company'.
378 MJ 2 (1995)
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