Proxinvest replied to the Government consultation on CEO pay

The French Government intends to introduce soon a bill on compensation practices and modernization of corporate governance.

These issues are organized around three themes: 1) The framework for different forms of executive compensation; 2) The governance rules relating to the fixing of the remuneration; 3) Other provisions of corporate governance not specifically related to compensation.

For Proxinvest it may seem less of a priority to legislate on specific remuneration instruments (options or perfromance shares) knowing that the financial system being in a partial framework unfavorable to shareholders will not enforce new laws any better than the often not respected current rules. Unles rebalancing upstream the powers of shareholders, laxity and abuse will remain encouraged.

In brief here are the main Proxinvest recommendations :

Enhancing the role of the shareholder is economically necessary in the listed and unlisted sectors and regardless of company size. As for the persons concernedby any compensation reform, transparency should be requested of all executive and non-executive Directors, members of the Executive Committee or the first ten employees: on te other hand the final control of effective individual remuneration should affect only executive and non-executive Directors.

Compel the application of a code of corporate governance, currently optional, can only be meaningful if these codes are established by joint commissions less biased ie no longer dominated only by the representatives of business.

It seems more urgent to keep and bring shareholders on the European continent rather than to protect or attract overpaid , that is to say non-performing executives.

The sovereignty of the shareholders control over remuneration should be reminded: if the French Commercial Code provides that the Board determines the remuneration of the Chairman (s. 225-47) and CEOs (a. L225-53), this skill can not be exclusive from the final yearly controls by the general meeting of shareholders pursuant to article L225-100: shareholders ultimately decide on all matters relating to the annual accounts and, where appropriate, consolidated accounts for the year.

It would be detrimental to prohibit the grant of stock-options or retsricted stocks under the pretext of their poor public image and some abusive situations actually observed, while allowing companies and leaders to restore by other means, such as conditional free shares or differred bonuses, the whole or a substantial part of their economic and fiscal effects, and thus reconstitute excessive pay with other instruments. Stock Options and Restricted Stocks have clear advantages, they are conditional over several years, create little or no burden on corporate cash, only marginally affect results by the IFRS provision and offer tax benefits for companies and beneficiaries.

The lax should require the resolution allowing for the plans to include not only the principal amount of the authorization, but also : 1 / the exercise duration or life of the stock option or share plan 2 / the verifiable applicable performance conditions 3 / the reference duration of these conditions, often too short 4 / their distribution, with indicated individual ceiling for corporate beneficiaries...

For variable salaries or bonuses at a minimum a posteriori explanation of the conditional criteria applied should be required. In principle, no variable corresponding to the annual performance of the past year shoud be paid prior to the Annual General Meeting. Auditors sould be made responsible for the accuracy of the amounts reported in the reference document, the timeliness of this presentation prior to the general meeting deciding on the accounts.


Legitimizing the total by a final approval in general meeting by a bounding vote is all the more necessary. In case of a negative vote, payment of these unapproved amounts should be withheld until the next general meeting except to convene a special meeting any variable.


The current framework of related party transactions should be seriously reviewed by a greater extent than we recommend tightening regulated agreements mentioned before by a reform of Article L 225-418. It is not normal that the majority shareholders disapproved compensation must resort to the courts to block the payment. Should therefore be reformed Article L225 device 41 so that now not approved conventions do not apply in respect of never interested. We propose two alternative formulas of reform weither by canceling the effects of any transaction for interested party when rejected by the majority of the shareholders or by providing that Directors become responsible for these adverse effects. 


15 September 2012