The French National Assembly adopted June 14, 2016 a bill making mandatory and binding the annual shareholder vote on the remuneration and benefits of listed companies managing directors. While the Senate could possibly scale down this law, we consider appropriate to reaffirm the principle of agency for the sound governance of corporations.
The controversy over the remuneration of the Renault Chairman & CEO Carlos Ghosn demonstrated the inadequacy of current French governance Say on Pay practices to regulate executive compensation. following the negative vote on the opaque and questionable Ghosn € 15 M. annual compensation, the contempt of the Board deciding to maintain the pay was considered ourtageous.
Proxinvest welcomes the legislative initiative restoring the ultimate shareholders authority over compensation and benefits granted to directors, which should enable to better establish executive compensation on merit and the actual performance, to limit the granting of hidden or unjustifiable benefits, and to ensure social cohesion by a better share of the value created.
The increase of top executive remuneration has not experienced a respite, despite the financial crisis, the individually granted amounts continue to surprise. According Proxinvest, executive compensation of the CAC 40 companies exceeded in 2014 the threshold of € 4 million (+ 6%) not including pensions…
The 2016 French season presented a first rejection by a majority of shareholders of the remuneration of a CEO. The chairman of Renault saw his remuneration, criticized for its lack of transparency, questionable structure and unreasonable amount of 15 million euros (against a reported $ 7.2 million for 2015) received a negative 54 % advisory vote of shareholders. The Board of Directors of the automotive group “took note of the negative opinion of shareholders” but then “approved the continuation of the compensation agreed for the CEO for 2015”. This triggered a sharp public controversy.
In this context, employers’ organizations AFEP and MEDEF decided to give the shareholder vote on executive compensation, “a mandatory, but without going to make it binding, vote” asking the members of the Board tol make a counter-proposal “within a reasonable time” and make it public.
This attitude was for the shareholders and for many observers a problem of contradiction between the ultimate shareholders AGM authority, which according to Article L 225-100 deliberate and approve both the financial statements and the report for the previous year and the lax and delaying attitude of the AFEP MEDEF committee.
The French National Assembly has since adopted a new Article L. 225-37-2 of the Commercial Code, imposing CEO pay to be least annually subject to shareholders approval: the resolution shall put to the vote a report that will include details the fixed remuneration, variable or performance related items of individuals and the criteria for their determination. Besides , with the exception of fixed remuneration, no payment will be made prior to their approval by the general meeting, and whenever the shareholders general meeting does not approve the resolution, the Board shall submit a new proposal at the next general meeting.
This bill, which is in the French legislative tradition of the control of related party transactions benefiting to corporate officers is also now entirely in line with European best practices including British, Dutch or Swiss.
This new article L. 225-37-2 of the Commercial Code creates a power-cons for 
nature shareholders to reassure investors in French companies and fight against some deviant behavior sometimes seen in executive compensation. Proxinvest therefore welcomes the new rights of control and the new responsibility entrusted to its equity investors customers and encourages the Senate to adopt this draft law.
June 20th. 2016
