This article is for company directors in Ireland who are navigating disagreements about director salaries or need to understand the legal framework for setting pay.
If you're dealing with disputes over remuneration, wondering whether you need shareholder approval, or trying to figure out what happens when directors can't agree on salaries, this guide covers the legal requirements under the Companies Act 2014, practical methods for resolving pay disputes, and how to properly document salary decisions.
Key Takeaways
• Directors can set their own salaries through a majority board vote unless your constitution requires shareholder approval. • Check your company's constitution before making pay decisions, as it may override default board authority on remuneration. • Directors must declare conflicts of interest and abstain from voting on their own remuneration to comply with legal duties. • Excessive director salaries may breach fiduciary duties and can be challenged by shareholders or disallowed by Revenue for tax purposes. • All director remuneration must be properly disclosed in financial statements, including salary, bonuses, pensions, and termination payments.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
Can directors set their own salaries without shareholder approval?
Yes, unless your constitution states otherwise, directors can set their own salaries through a majority board vote under the Companies Act 2014. However, many company constitutions require shareholder approval for director remuneration to prevent abuse, so you should check your specific constitution before making any pay decisions.
What happens if one director objects to another director's salary?
One director objecting doesn't automatically block salary decisions if other directors form a majority. Most decisions need simple majority approval, not unanimous consent, so the objecting director can be outvoted as long as proper procedures are followed.
What should I do if two directors deadlock on a salary decision?
You can appoint an additional director to break the tie, check if your constitution gives anyone a casting vote, or request a shareholder resolution to decide the matter. As a last resort, you can apply to court for directions under Section 212 of the Companies Act 2014.
Can one director secretly pay themselves without board approval?
No, this would breach multiple legal requirements and fiduciary duties. All director remuneration must be properly approved through board resolution and disclosed in financial statements, and unauthorised payments may be treated as prohibited director loans that are recoverable by the company.
Do I need to disclose director salaries in the company's financial statements?
Yes, the Companies Act 2014 requires disclosure of director remuneration in financial statements, including total remuneration for each director, different remuneration components, and pension benefits. This is a related party transaction that must be properly documented in your annual accounts.
What happens if directors set salaries that are too high?
Directors who set unreasonably high salaries may breach their fiduciary duties and face derivative actions by shareholders for breach of duty. Additionally, excessive salaries may be voidable transactions if the company becomes insolvent, and Revenue may disallow them for corporation tax purposes.
How do I determine what's a fair market rate for director salaries?
Market rate analysis compares director salaries to similar roles in comparable companies, considering factors like company size, industry sector, revenue, geographic location, role responsibilities, and time commitment. You can hire remuneration consultants to provide objective benchmarks when directors can't agree on appropriate pay levels.
What if my company constitution doesn't mention director pay at all?
When your constitution is silent on director remuneration, directors can set salaries through a simple majority vote at board meetings. However, you must still act in the company's best interests, set salaries that reflect market rates and company circumstances, and follow all reporting requirements in annual accounts.
Do I need shareholder approval for director employment contracts?
Section 160 of the Companies Act 2014 requires shareholder approval for director service contracts exceeding two years. These contracts should document salary terms, review provisions, notice periods, benefits packages, and termination terms, and must align with board resolutions on remuneration.
