Report on The High Pay Centre seminar Is France leading the way on pay? held on the 29th of October 2012
Soon after François Hollande’s election victory in May 2012, the French finance minister Pierre Moscovici announced a raft of measures aimed at reforming company practice and improving business ethics. This seminar offered an opportunity to discuss France’s business practices with a focus on François Hollande’s plans for reform.
The speakers were Denis Branche, Executive Vice President at Phitrust Active Investors. Phitrust is a French asset management company which develops shareholder engagement strategies to promote good practice among listed companies and encourages them to develop business strategies that benefit those at the ‘bottom of the pyramid’. Also Samy Amhar, an economist working in international development. Mr. Amhar has been a member of the Parti Socialiste (PS) for many years and worked with Axelle Lemaire, PS MP for France’s third constituency for overseas residents since December 2011, during her election campaign. Mr. Amhar is in charge of economic issues at the London Office of the PS.
Mr. Branche began with an introduction to Phitrust, detailing the ways in which they had engaged with large French companies like the oil giant Total, since being set up in 1998. Of the 29 resolutions Phitrust has filed at AGMs, 3 of these have been on issues of remuneration.
Phitrust is keen to see payment for performance, but is active in fighting against rewards for failure, such as payments made to the chief exec of Alcatel Lucent where the share price lost 90% of its value over 10 years.
Since President Hollande came to power, the Autorité des Marchés financiers (the French Financial Markets Authority, the main stock market regulator) has been holding a consultation in preparation for a law on remuneration.
Phitrust has given evidence to this consultation, making the following comments:
1) Transparency of remuneration had increased rapidly over the preceding 10 years, particularly in companies disclosing the 10 most important salaries.
2) Companies often do not regard shareholders as having a legitimate say on remuneration. Phitrust believes that a shareholder vote would increase this legitimacy and could lead to some moderation in pay.
3) There need to be codes of governance which are not written by the companies themselves, for example, by Medef (Mouvement des Entreprises de France, the largest union of employers in France).
4) The variable parts of pay packages are essential but must be long-term and linked to the performance of the company.
5) Phitrust insists upon the importance of the remuneration committee in representing the shareholders in a company. CEOs and chairmen should not be part of these committees, as they often are at the moment.
Mr. Branche noted that this was not wholly achievable by legislation and that a future law should not be too strict. He emphasised the role of shareholders in voting and giving their opinions.
He said that next year, Phitrust will focus on Carlos Ghosn at Renault who earns €2 million from the French car company but another €11 million from his role at Nissan in Japan. The French government still has a 15% stake in Renault and is also likely to have a say over pay at the company.
Mr. Amhar began by noting that the long-standing pay debate in France had taken on a new urgency as a result of the economic crisis and an increase in income inequality. President Hollande, he said, had made a commitment to cap the pay of CEOs of state-owned French companies. The new law which was passed in July this year and will come into force in 2013 limited top salaries to 20 times the lowest salary in a company, equating to roughly half a million Euros. Mr. Amhar explained that this was largely a symbolic measure since it would only affect around 20 individuals. The idea was, instead, to send a signal that it is no longer acceptable for CEOs to award themselves indecent salaries. This reform should also have a gradual filter-down effect through companies with partial state-ownership to fully private enterprises.
This new law will have the biggest effect on Henri Proglio, CEO of state-owned energy company EDF, who will have to take a 70% pay cut from €1.6-1.7 million.
France is also looking at aligning income tax and capital gains tax rates over the longer term which could close many tax breaks currently enjoyed by the wealthy.
The debate covered specifics of the new law; the new 75% wealth tax in France (which affects income over €1 million); the public and press reaction to the reforms; and the role of variable remuneration in performance.
This event will be the first in a series of events focusing on the pay debate internationally. Look out for seminars on Norway, Japan, Sweden, Germany, Italy and Spain coming up in 2012-2013. See the events page for more information.