Why regulating the salaries of private company bosses is so complicated

Posted Apr 15, 2022, 7:11 PM

· Why Emmanuel Macron proposes to cap the salaries of bosses at the European level and not in France?

Stellantis, resulting from the merger between PSA and Fiat, chose last year to set up its headquarters in the Netherlands. The new group does not have to comply with French law or the Afep-Medef corporate governance code. His only constraint is to obey Dutch law. If the shareholders do have a right to vote on the remuneration of the directors of listed companies (“Say on Pay”), the latter is only consultative and not binding as it is in France. The company may therefore disregard this vote.

Stellantis is not the only group listed on the Paris Stock Exchange with a head office outside France and which is therefore not affected by French rules. This is the case for a dozen companies in the SBF 120. Among them, ArcelorMittal, headquartered in Luxembourg, or Airbus, in the Netherlands. In 2019, Thierry Pilenko, the CEO of the oil services group TechnipFMC, was strongly criticized for having received a starting envelope of around 14 million euros. And this, while his group had suffered heavy losses. This disputed remuneration did not meet the recommendations of the Afep-Medef code. But, TechnipFMC being under English law, it was not subject to it.

Why not require foreign companies listed in France to refer to the French code of governance? The answer is simple: it would limit the liquidity and attractiveness of the Paris marketplace.

· Bills to regulate bosses’ salaries have already been announced. Why did they fail? What measures were taken instead?

In 2012, presidential candidate François Hollande made a strong commitment to limiting the highest salaries. Tax at 75% on the highest salaries, end of stock options, limitation of bonuses, capping of the remuneration of the managers of public companies and supervision of those of the bosses of private companies. Finally, in 2013, only the remuneration of the managers of public companies (EDF, SNCF, La Poste, etc.) was capped at 450,000 euros per year by decree. The Sapin 2 law in 2016 made the shareholder vote binding on the compensation of bosses. A few months earlier, on the other hand, a bill presented by Communist deputies had tried to regulate remuneration in private companies. The lowest annual salary could not be more than 20 times lower than the highest overall annual remuneration in the same company. “This proposal was rejected by the National Assembly’s Social Affairs Committee on the grounds of a risk of unconstitutionality. And this, because it proved to be contrary to the freedom of enterprise” explains Jean de Calbiac, at Avanty Avocats.

Since 2020 and the Pacte law, companies listed in France must publish an equity ratio which measures the difference between the salary of their CEO and that of their employee.

· Are shareholder votes an effective bulwark against excessive wages?

A study by Edhec dating from 2012 concluded that the “Say on Pay” in the United Kingdom or the United States had no influence on the increase or decrease in remuneration but that it had resulted in greater dispersion of earnings. On the other hand, according to Frédéric Palomino, the author of the study, the leaders fear that the resolutions on remuneration will not obtain a high score. The reflection on salaries can also be carried out by the shareholders themselves. Thus, the Additional Public Service Pension Establishment (Erafp), a public pension fund, systematically votes against remuneration exceeding 100 times the minimum wage.

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