ECGS welcomes the 15th report on French executive compensation

Shareholders of the largest French listed companies will now vote in 2014 on executive compensation following the amendment to the AFEP-MEDEF corporate governance code. Proxinvest the French proxy advisor just published its fifteenth consecutive report on executive compensation.

The analysis of the remunerations granted for the fiscal 2012 year indicates that the average total compensation of executive chairmen of the 120 top listed French companies rose by 2.4 % in 2012 and reached € 2,839,000. Adjusted for special items such as severance pay are rising by 6.3 %. 

Among them, the CAC 40 CEOs, however, exercised due restraint in the context of the presidential election adding tax or regulatory pressure. Their average compensation passed under the € four million line to € 3,968,000 (-6.3%). The top executives of the 80 following companies (SBF 120 companies not included in the CAC 40 index) have however received very significant pay raises (+9.3 %).

Thirteen CEOs in 2012 and 2011 exceeded the remuneration ceiling of 240 official French minimum wage, currently € 4.7 million, retained by Proxinvest as socially acceptable maximum. Bernard Charlès, the CEO of Dassault Systèmes, is this year's top earner with a total € 14.9 million (+36%) remuneration. Carlos Ghosn, the CEO of Renault-Nissan, is second to € 13.4 million. The CEO and owner of Christian Dior group, LVMH, Bernard Arnault, is at the third place with € 9.5 million at LVMH only.

Beyond these quantums also appears the question of the relationship with the performance. Proxinvest observes that the relationship between performance in the medium to long term business and compensation provided to executives is clearly insufficient. Only 9% of the total compensation of executive chairmen of the SBF 120 is based on performance conditions measured over a minimum of three full years (12% in 2011). This lack of link between pay and long-term performance is a concern for investors who seem to suggest to the directors and compensation committees to reduce the fixed annual compensation and bonuses paid in cash in favor of a truly long-term performance lined compensation using economic, financial and ESG criteria.

On fixed remuneration too many boards of directors fail to explain to shareholders the reasons for increases in fixed remuneration while the average fixed remuneration of the SBF 120 CEOs has increased significantly faster than inflation since 2006.

In a favorable stock market environment (CAC 40:+15 % in 2012) but disappointing results showing cumulative net income down  by 27 % (as computed by Investir), the annual variable compensation does not drop in the CAC 40 index and even increases by 5 % in the SBF 80 companies. These annual bonuses remain at a high level (120% fixed in the CAC 40) and appear hardly justified as the rate of achievement for the criteria underlying these variable remunerations are only in rare exemplary cases fully disclosed (e.g. Essilor International, Teleperformance).

Finally, the shareholder remuneration (options, shares or instruments indexed to shares) increased by 7% in the SBF 120. This form of compensation based on value creation over the long term is the best alternative to political short-termism compensation. Proxinvest’s voting policy continues to encourage under conditions demanding performance criteria, measured on a minimum of three years and verifiable with an exemplary level of transparency.

Proxinvest observed the development of multiple new innovative compensation forms (deferred bonus, deferred bonus shares, synthetic remuneration multi variables) for which full transparency is needed, as for the disputed indirect remuneration practices using special holding companies or related party transactions.

The report also examines compensation for chairmen and non-executive directors. The top French Chairmen are paid the equivalent of 8.6 times the pay of their fellow directors. They will have received a token increase of 4% for a total of € 65 million for the year. In some cases the Chairman or Vice-Chairman is given additional responsibilities specific to their normal duties. These payments therefore clearly deserve to be approved by the general meeting, according to Articles L225- 38 and L225 -46 of the Commercial Code.


                                                                                                                                                                                                                                                                           November 6, 2013


The Proxinvest report (289 pages) will be available on 12 November 2013 at Library LDEL / JUSTICIA library. It can be ordered using the following purchase order :