CEO remuneration in Europe

After three years of decline, Proxinvest observed on the figures related to FY2010 published in 2011 a huge increase in the total CEOs (including stock options and shares valued at date of grant). The average total remuneration of the forty top French CAC 40 CEOs increased by 34% in 2010 to 4.11 million euros. This recovery, which still does not reach the € 5 million level observed until 2006, was not observed only for CAC40 CEOs since the CEOs average remuneration in the 80 smaller cap companies of the SBF 120 index  reached 2.08 M €, up 31% in 2010.
By contrast the average figure for the mid cap ??companies of the SBF 250 index dropped by 17% in 2010 for their CEO who now stands at € 511 000, or eight times less than the remuneration of CAC40 CEOs.
Eleven CEOs exceed for 2010 the Proxinvest ceiling of 240 annual minimum salary (SMIC), a limit of the socially acceptable pay of € 4.6 million per year: Jean-Paul Agon (L'Oreal - € 10.7 million), Bernard Arnault (LVMH - € 9.7 million), Carlos Ghosn (Renault - € 9.7 million), Bernard Charles (Dassault Systems - € 9.5 million), Franck Riboud (Danone - € 7.7 million), Maurice Levy (Publicis - € 6.2 million), Christopher Viehbacher (Sanofi- Aventis - € 6.1 million), Arnaud Lagardère (Lagardère SCA - € 4.9 million), Henri de Castries (AXA - € 4.9 million) and Lars Olofsson (Carrefour - 4.8 M €).
These figures understate total compensation, however, since they do not include the transfer value of accrued pensions which is usually not disclosed in France.
Proxinvest observed a number of other abnormalities such as cases of large increase in base salary, bonuses in excess of previous maximum limit for CEOs of large banks (while those bonuses are partly differed), the use of cash-based long-term incentives to avoid any control by the general meeting of shareholders. Many annual bonuses appear to be partly secured and many options or share plans have short term performance measurement period.
In view of these deficiencies to the "reasonable" and "balance" principles advocated by AFEP-MEDEF, there is clearly a failure of self-regulation.
Fixed remunerations are misnamed since their average amount increases by 6% for the first 120 French leaders. It represents 27% of their total compensation. Daniel Julien from Teleperformance has the highest base salary with € 2.2 million, just before Jean-Paul Agon of L'Oreal (M€ 2.1).
The annual bonus attached to FY2010 is 35% above the FY2009 bonus and accounts for 30% of their total remuneration. If higher profits for FY 2010 explain this increase, the French companies, unlike many of their European counterparts, do not disclose quantified performance conditions.
The "miscellaneous" items, corresponding to benefits in kind, director attendance fees, termination payments or exceptional items, weight 12% of the total compensation of a CEO of a SBF 120 index company.
The share related incentives whether in the form of options or in the form of performance shares  amount to K€ 843 (+34%) for the SBF 120 CEO, i.e. 30% of their total compensation.  While LTI should be designed to reward performance over the long term, their weight is insufficient while the part of short-term remuneration seems excessive. They are also often based on poorly disclosed performance conditions or applicable over too short periods of less than three years.
The average compensation of € 4.11 million of a chief executive of the CAC 40 breaks down as follows: 995 K € in base salary (24% of total), 1 374 K € in annual bonus (33%), 647 K € in options (16%), 574 K € in shares (14%) and 524 K € in other elements (13%).
Proxinvest and its European partners of ECGS (Expert Corporate Governance Service) studied a sample of 367 large European groups. The average earnings of these CEOs amounts to € 3.9 million. The average total compensation of the French CEOs is only 50% of the remuneration of their British colleagues, 70% of their Italian colleagues, 80% of the Spanish, Swiss or German CEOs but they paid 16% more than the Dutch, Belgian and Irish and 150% more than Scandinavians.
Transparency of leading French companies and readability of performance is lower than that observed in countries where CEO remuneration policy is subject to a Say On Pay vote by shareholders.
The shareholders of French companies have for their part in 2011 maintained their critical eye on the remuneration of the only items submitted to them and rejected seven collective plans of options and restricted stocks.
Facing the imbalances generated by the universal banking model, our stock market needs to be revitalized through greater accountability of managing directors. Issuers, trying to define themselves the French rules of good governance, continue to oppose the legitimization of remuneration by the shareholders' meeting .
Once ahead of governance issues, France should catch up on the previous annual shareholder vote on executive pay, also called the vote "Say on Pay." The annual vote, advisory or mandatory, was successively generalized by legislative changes as was the case in the UK (2002), Australia (2004), the Netherlands (2004), Sweden (2006) , Norway (2007), United States (2010 Dodd Frank) or in neighboring Belgium (2011) and Germany (2011). Attention should be modeled on the Dutch preliminary and binding vote by the general meeting of the remuneration policy before implementation, a model that has led to a good level of dialogue between issuers and investors, moderate compensation and a relative high link between remuneration and long term performance. Another unlikely solution would be that French issuers voluntarily introduce this vote as Switzerland or change the provisions of their code of good governance (AFEP-MEDEF) as in Spain (2008) or Italy.
Build confidence between shareholders and managers is more than ever essential on this remuneration issue and Proxinvest proposes three priorities to contribute:
• An annual vote on remuneration
• Information on the yearly pension cost
• Readible and checkable Performance criteria


The observation confirms a recent individualization of criticism of shareholders who judge now "ad hominem". Exemplarity, according to Albert Schweitzer and Winston Churchill, is the only management method possible and remuneration will not escape this rule.