Remuneration of Management Bodies in Joint-Stock Companies

Remuneration of Management Bodies in Joint-Stock Companies

Before the amendments to the Serbian Law on Companies (ZPD) in 2021, the remuneration system for directors and members of supervisory boards in Serbian joint-stock companies was far less transparent. The lack of specific legal provisions created a gap that often concealed the actual amount and structure of these payments from the majority of shareholders. This environment favored potential conflicts of interest and hindered efficient corporate governance, especially for minority shareholders.

As Serbia had applied for membership in the European Union, it was required to align its legislation with EU directives that promote greater transparency and improved corporate governance. Hence, the amendments to the ZPD in November 2021 introduced key changes.

Article 393a of the ZPD now explicitly grants qualified members of a company holding at least 5% of share capital the right to request access to the amount and structure of the total remuneration paid or promised to each current and former director or member of the supervisory board. This includes all fixed and variable payments, benefits, and other securities awarded as compensation.

The company is obligated to provide this information to the requesting party within three days of receiving a written request. Failure to comply with this obligation constitutes an economic offense and carries significant penalties. The prescribed fines for companies range from RSD 100,000 to 1,000,000, along with penalties for the responsible person (Article 595, paragraph 8, item 1 of the ZPD).

Regarding public joint-stock companies, one major difference compared to non-public joint-stock companies is that public companies are subject to stricter regulation concerning remuneration policies.

Before the ZPD amendments, the framework for regulating remuneration was significantly less detailed and transparent, with no legal obligation to adopt and publicly disclose a detailed “Remuneration Policy” or a comprehensive “Remuneration Report.” The shareholders’ assembly played a role in approving remuneration, but there was no advisory vote on a clearly defined policy or any obligation to provide justification in case of disagreement. This resulted in lower transparency of criteria for variable compensation, bonuses, and benefits, and limited insight into their connection to long-term performance. There was also no explicit requirement to link executive pay to employee earnings or to impose clawback provisions for variable pay, limiting public and shareholder oversight.

Following the 2021 amendments to the ZPD, certain changes were introduced through mandatory Remuneration Policies (Article 463a) and Remuneration Reports (Article 463b). The remuneration policy must now clearly define fixed and variable components, bonuses, benefits, financial and non-financial criteria for variable components, deferral periods, and, crucially, clawback provisions for variable pay. It must also explain how the remuneration contributes to the company’s strategy and long-term development, and how employee earnings impact its determination. The policy must be published online, and failure to do so constitutes an economic offense.

In addition, the Remuneration Report is now a comprehensive document that includes all remuneration paid to each member of the management bodies (both current and former), including payments from affiliated entities. A new requirement is a comparative presentation of annual changes in remuneration, company performance, and average employee earnings over the past five years. The report must be audited by an external auditor and, after being reviewed by the shareholders’ assembly, published on the company’s website and kept accessible for at least ten years, in compliance with personal data protection (disclosing only the name and remuneration amounts).

The role of the shareholders’ assembly (Article 463v) has been strengthened with the introduction of mandatory approval of the remuneration policy and report, which puts pressure on management to align with shareholder interests. If rejected, management is obligated to provide justification and submit a revised proposal. However, the legislator failed to regulate the legal consequences of not adopting a remuneration policy.

These amendments represent a significant step toward improving transparency in Serbian company law. Their primary goal is to strengthen the position of minority shareholders and enable better oversight of management activities. The implementation of these provisions is expected to greatly contribute to raising the standards of corporate governance and aligning domestic legislation with the best practices of the EU.

These changes aim to prevent, or at least reduce, the so-called “first agency problem.” Furthermore, the legislator’s intention was to mitigate the risk of irresponsible managerial behavior and to strengthen the trust of shareholders and the public by providing significantly greater insight into compensation practices in public joint-stock companies.