On March 10, 2015, the Board of Commissioners of the Brazilian Securities and Exchange Commission ("CVM") decided that stock options granted to officers and directors should be considered part of their remuneration and, therefore, the respective value of the options must be approved at the shareholders meeting, at the time of approval of the managers' total annual remuneration.
The CVM decision was issued in Administrative Proceeding 2014/6629, involving a national logistics company.
In that case, CVM's Corporate Relations' Office ("SEP") noted that the annual remuneration of the company's managers in fiscal year 2011, disclosed in its Reference Form, exceeded the amounts approved during the annual shareholders meeting.
The company clarified that the difference was due to the fact that the remuneration indicated in the Reference Form also included the stock options granted to the managers, based on the stock option plan approved at the shareholders meeting. According to the company, the stock option grants should not be deemed part of the managers' annual remuneration approved during the shareholders meeting. The company based its argument on Article 168, § 3° of the Brazilian Corporations Law ("BCL"), and not on Article 152 of the BCL, which specifically regulates annual remuneration.
SEP, however, believed that the stock option grants should be considered part of the managers' annual remuneration, as Article 152 of the BCL requires approval by the shareholders of the remuneration and any other benefits received by the managers.
ALL appealed to CVM's Board of Commissioners challenging SEP's position.
CVM's Board of Commissioners upheld SEP's position, emphasizing that:
i. stock option grants have a compensatory nature;
ii. there is no conflict between Article 152 and Article 168, § 3° of the BCL; approval of the stock option plan at the shareholders meeting does not excuse the requirement that remuneration implemented through stock option grants be approved by the shareholders;
iii. it is not possible to assume that the BCL requires the approval of total remuneration at the shareholders meeting and at the same time provides that part of the remuneration (stock option grants) need not be approved by the shareholders;
iv. approval of the managers' remuneration by the shareholders would become ineffective if it did not encompass all of the amounts assigned to managers, including stock option grants; and
v. if approval by the shareholders of the remuneration implemented through stock option grants was not required, company management would have the exclusive authority to determine components of managers' remuneration, which is a prerogative of the shareholders.
The understanding of the Board of Commissioners should be complied with by every Brazilian publicly-held company.
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