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According to an interpretation issued by the Ministry of Economic Affairs (MOEA) on 20 January 2004, "directors' remuneration" refers to remuneration payable to directors for their ser-vices to a company; whereas "directors' com-pensation" refers to a category of distributed earnings. The two terms are different in the following ways:
If the level of directors' remuneration is not defined in a company's articles of incorpora-tion, it should be set by resolution of a share-holders' meeting. It is therefore unlawful for the board of directors to determine on direc-tor's remuneration or for the articles of incor-poration to delegate such power to the board or the chairperson. Further, a shareholders' meeting cannot retroactively ratify a board's determination on directors' remuneration.
Directors' compensation must be defined in the articles of incorporation to be a category of distribution of earnings. The Company Act provides that unless the articles of incorpora-tion provide otherwise, share dividends and bonuses are to be allocated in proportion to the shareholdings of each shareholder. Therefore the MOEA stated in an interpretation dated 5 March 2004 that unless the articles of incor-poration authorize payment of employee bo-nuses and directors' and supervisors' com-pensation by way of earnings distribution, earnings may only be distributed to share-holders as dividends and bonuses. But if so provided by the articles of incorporation, di-rectors may get a share of the earnings re-gardless of whether they are shareholders.
