Compensation for business executives


There are several legal guidelines when it comes to compensation packages. Since the financial crisis occurred governments around the world have been considering creating limits on the level of compensation business executives are entitled to.

However, even without new government intervention these packages should be limited to a reasonable amount by law.

How are compensation packages agreed on?

The two pieces of legislation which deal with this area are the Companies Acts (1985 and 2006). The main legal issue with excessive executive pay is addressed in the directors’ duties which are found in these acts.

A company’s director has, above all, a fiduciary duty to maintain the best interests of the company. If a director is found not to have fulfilled this duty he may be personally liable for the consequences.

When running the business, compensation packages should therefore be designed with the company’s best interests in mind. If it can be proven that the reason for a company’s downfall was excessive compensation, business leaders who signed off on those salaries would be personally liable.

Making decisions

If you are facing a decision regarding a compensation package, or you have been accused of over-extending the company’s budget by paying certain employees too much, the important thing to ask is what the alternative would be.

In some cases the successful management of a business relies on getting the right people and those people would only take part if they are offered a sizable compensation. Business leaders sometimes need to pay significant amounts to secure the right employee. In other cases there might be no justification for a large salary, and you could be liable.

If you would like to obtain legal advice on business, compensation or commercial law, Contact Law can put you in touch with a local commercial solicitor free of charge. So, if you have any questions or would like our help in finding local commercial solicitors please call us on 0800 1777 162 or complete the web-form above.

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