French Investors Set for Say on Executive Pay

UK-inspired provision in the Socialist government’s anti-corruption bill will allow shareholders to vote on the pay packages of chief executives when they are hired or when the structure of their compensation changes. But it goes further than the UK say-on-pay approach by also allowing them to turn down the variable part, which is tied to companies’ annual performance, every year. The measure, hailed by Michel Sapin, finance minister, as a “considerable step forward, was adopted in France’s lower house of parliament yesterday and is expected to be formally passed before the summer recess. The legislation comes as shareholders and board members at state-backed Renault tussle over the pay of the chief executive Carlos Ghosn . Last month, in an unprecedented rebuff, shareholders voted against Mr Ghosn’s €7.3m pay package for 2015. The board ignored the vote, which was merely consultative, opting to leave the package unchanged. The decision sparked fury within the French government , which has two representatives on the board who have voted against the compensation. The dispute over executive pay has taken a political turn a year before France goes to the polls in presidential elections. After Renault’s decision not to take shareholders’ wishes into account, socialist president François Hollande warned: “If there is no drastic action [from companies], all decisions on pay by shareholders will be binding and the board of directors will not be able to undo them.” The new provision is designed to make such shareholder decisions binding. However, the government has stopped short of setting a cap on executive compensation, a demand that had been voiced by some Socialist MPs. The system will still give room for boards to set the variable part of the package, which is by definition hard to predict as it depends on the annual financial performance of companies, according to Loïc Dessaint at Proxinvest, which advises investors on votes and corporate governance.”Boards will still have a lot of power, they will be able to remain vague on the variable part,” he said. “But there will be more intense discussions between board members and shareholders on pay.” (FT)

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