Proxinvest, the French proxy adviser, publishes his seventeenth report on the remuneration of the SBF 120 index executives.
After two years of decline, the average total compensation of the Chief Executive Officers of the CAC 40 index reaches € 4.21 million in 2014 (+ 6%). In contrast, the average total remuneration of the SBF 80 index (next 80 companies after the CAC 40) falls by 3% down to €2.36 million after two consecutive years of increases.
The remuneration structure stays faulty as 40% of the Chief Executive Officers have no long-term remuneration of any sort. Indeed, the remuneration structure is focused on short-term: the average fixed remuneration (€ 1.042 million) and bonus (€ 1.308 million) remain stable in the CAC 40 index. The 6% increase in total remuneration is mainly due to exceptional elements (severance payments) and the increased use of performance shares, which now account for 29.1% of the remuneration of the CAC 40 index CEOs. Stock options have almost disappeared in France as they now account for only 4.1% of total remuneration. In the coming years, changes in legislation (“Loi Macron”) aiming to promote free share plans will further fuel the performance shares boom and the stock-options decline.
The report details the different components of executive remuneration in the SBF 120 index. With € 15.2 million, Carlos Ghosn, CEO of Renault-Nissan, is the best paid CEO in 2014. His massive increase in remuneration (+ 56%) clashes with the context of efforts required from Renault employees through a competitiveness agreement. For years, Carlos Ghosn has been paid from Renault as well as from Nissan (of which Renault holds 43%). For the first time, his Nissan pay tops one billion yen, the equivalent of € 8 million. In addition, Nissan does not disclose the nature of the remuneration and the amount appears disconnected from Japanese practices (Ex: Akio Toyoda (Toyota) € 2.7 million, Takanobu Ito (Honda) € 1.16 million).
His Renault pay package was challenged by the French state, with only 58% of the votes FOR. The Say On Pay would have been rejected if the majority of foreign investors had not voted FOR the resolution according to Proxy Insight (including Alliance Bernstein, CPA, Blackrock, Calpers, CalSTRS, Capital, Deutsche Asset Management, Fidelity, Henderson, Legal & General, MN, Norges Bank, Ontario Teachers, TIAA-CREF, Vanguard). Proxinvest will conduct a survey among these shareholders to determine if the lack of information regarding the remuneration paid by Nissan in the meeting documentation has misled them.
Christopher Viehbacher, former CEO of Sanofi is the second best paid executive with € 12.5 million of total remuneration. While the performance conditions of his severance pay previously approved by the general meeting were not met, administrators granted him a new settlement payment of € 4.2 million. In addition, the presence requirement on the performance shares and stock options was lifted.
With € 11.1 million, Bernard Charles reaches the third place of our ranking. For years, the massive performance shares plans have placed the CEO of Dassault Systèmes among France most paid executives. In 2014, Bernard Charles has received an amount of €8,718,000 of performance shares according to Proxinvest (€5,620,500 according to the company). The valuation gap is explained by the weakness of the performance conditions according to Proxinvest.
Ten years ago, Proxinvest fixed a maximum socially acceptable remuneration of 240 times the minimum wage (“SMIC”) aiming to encourage investors, directors and executives to focus not just on transparency and performance but also the amounts allocated. While thirty one CEOs of the SBF 120 index exceeded the limit of 240 SMIC ten years ago, they are now sixteen and Proxinvest ceiling seems to have had a deflationary effect. To go further in the analysis of the necessary social cohesion, Proxinvest backs the transposition of the CEO Pay-Ratio in the French law.
The directors fees increased by 1.3% while for the first time in six years, the remuneration of non-executive Chairmen increased (+ 10%), Philippe Camus (Alcatel-Lucent) being the highest paid (€1,36M, with the allocation of performance units) and Franck Riboud (Danone) aspiring to take the first place with a fixed remuneration of € 2 million as of 2016.
The second season of “Say On Pay” in France saw no rejected remuneration, but issuers were challenged with increased intensity (approval rate of 87.87% in 2015 against 91.69 % in 2014 in the SBF 120 index). The votes have focused the meetings on remuneration and transparency increased. Only 29.2% of companies met our recommendations. However, Proxinvest is delighted to see his opposition rate decrease as more companies adopt good practices. Many improvements are still expected to ensure reasonable and transparent remuneration policies, aligned with long-term performance. Directors, including members of remuneration committees, will be expected to dialogue with shareholders on these issues.
The 2015 proxy season was agitated by controversies related to severance agreements: Michel Combes at Alcatel-Lucent, Chris Viehbacher at Sanofi, and Patrick Kron at Alstom. These controversies have highlighted the current lack of regulation and the inadequacy of the ex-post advisory votes on remuneration. Against excess, shareholders rights must be strengthened, and an ex-ante vote on the remuneration policy, as it exists in the UK, appears as a necessary reform.
The full report (260 pages/ French) is available at LDEL/Justicia.
