France’s ERAFP demands that execs limit pay to 50x worker median

French fund tightens up its board pay voting policy and aligns itself with EU female board member quotas.

ERAFP, the €15bn Paris-based French Public Service Additional Pension Scheme – a 100% SRI pension fund – is demanding that investee companies limit their executive pay to a maximum 50 times median salary, in another move by a major pension fund to cut back on excessive board rewards. The move will be of special relevance to France’s CAC40 index of largest companies where ERAFP holds a significant share allocation. In its 2014 voting policy, ERAFP, which is one of France’s biggest institutional investors and one of the world’s fastest growing pension funds, said it would also be pushing companies to match European Commission targets of having 30% of women on boards by 2015 and 40% by 2020. It said this aligned the fund with recommendations by Viviane Reding, EU Commissioner for Justice who has set an intermediate target for companies of 25% of executive women this year. ERAFP is one of the largest public pension funds in the world with nearly 4.5m beneficiaries in the French civil service, local authorities and the public hospitals sectors. It takes in close to €1.75bn in contributions each year.
In 2012, ERAFP took a major step for a French asset owner by implementing a detailed voting and engagement strategy to cover its relationship at annual general meetings (AGMs) with investee companies. The move is rare in France where shareholder activism isuncommon. The corporate governance push has since been followed by Ircantec, the €6bn French public pension fund, the “Institution de retraite complémentaire des agents non titulaires de l’État et des collectivités publiques” (supplementary pension institution of non-permanent staff of the state and public authorities). ERAFP made a first move on executive pay in 2012 when it recommended that any director’s total remuneration should not exceed 100 times the minimum salary in the firm. This year, it says it is also calling for companies to publish “detailed and exhaustive” extra-financial reporting, and saying that they should analyse any shareholder resolutions of an environmental or social nature. The French pension fund is also promoting the concept of a “responsible dividend”, which weighs up a company’s dividend growth against its self-financing capacity and the evolution of payroll expenditure to decide if shareholder dividend levels are wise. RI reported in November 2013 that pension funds including the five New York City schemes, ERAFP, Bâtirente, the C$1.4bn (€1bn) pension fund for construction workers in Quebec, and ICCR, the $100bn coalition of more than 300 faith-based investors, had written to the US SEC supporting the proposal of disclosure of the ratio of CEO-to-worker pay, which they said would be of “material benefit” to investors.