Remuneration rules for individuals managing entities controlled by the State Treasury and local government units are defined by statute and, in line with the legislator’s decision, are not to be governed only by the rules of free economy.
by Izabela Szczygielska advocate, counsel head of labor law practice WKB Wierciński, Kwieciński, Baehr
The hitherto applicable provisions of law (the Act of March 3, 2000 on the Remuneration of Persons Managing Certain Legal Entities [Journal of Laws of 2015, item 2099, as amended] commonly referred to as the State Sector Salary Cap Act) provide for a strict definition of the algorithm for the calculation of remuneration of individuals to whom this statute applied. Since their adoption, these provisions had been broadly criticized as the salary limits were determined on the basis of the given entity’s legal status, without taking into account other significant factors, such as its economic results. Furthermore, some benefits were granted regardless of the employment period, which led to situations in which a manager who worked for a period as short as a few days was eligible to receive a very high severance payment. Also, a significant part of the remuneration was a fixed amount, which limited its incentive function.
The new act – the Act of June 9, 2016 – on the Principles of Determining the Remuneration of Individuals Managing Certain Companies applies to commercial companies with the State Treasury’s shareholding, which will no longer be covered by the provisions of the State Sector Salary Cap Act. The new act regulates the remuneration in limited liability companies and joint stock companies in which the State Treasury or local government holds any shares, rather than over 50 percent of the shares, as had been the case up until now. Also, the old provisions allowed managers to be exempt from the rules set out in the State Sector Salary Cap Act subject to meeting the conditions stipulated by the statute, one of which was the directors and officers (D&O) liability insurance.
As opposed to the old act, which provided for the possibility to hire individuals e.g. under employment contracts, the new provisions allow them to be employed only on the basis of civil law contracts. The remuneration of members of governing bodies will be composed of two parts: a fixed part and a variable part. The new act defines the maximum duration of the non-compete obligation, as well the maximum compensation for agreeing to same.
The State Sector Salary Cap Act will not cease to exist, however it will apply to a much smaller group of entities. The new act provides greater flexibility in defining the rules of remuneration in entities subject to its provisions. Even though it sets the cap for the remuneration of members of managing and supervisory bodies, it also allows for the remuneration limits to be adjusted if justified by special circumstances. The new act was signed by the President on July 26, 2016 and published in the Journal of Laws on August 9, 2016. The new provisions will enter into force 30 days after their publication.