France to implement binding “say on pay” votes at listed companies after fat cat pay scandals

Say on pay votes at listed French companies will soon be legally binding following the approval of a new transparency, anticorruption and economic modernisation bill by the country’s National Assembly, with laws set to come into effect at some point in the next 12 months.

New laws will give shareholders the power to pre-approve or reject pay deals and other financial advantages, including stock options and deferred salaries, for top executives and board directors ahead of a company’s AGM. It will also require companies to later verify exactly how well specified individuals have been paid, ensuring that pay reflects performance and shareholders’ wishes.

Flavia Micilotta, Executive Director at the European Sustainable Investment Forum (Eurosif), welcomed the development, telling RI: “The decision by the French government will certainly give further emphasis to the issue of corporate remuneration, corporate transparency and governance in general.

“It adds positively to the way France is positioning itself in the European arena as a leading force in corporate and investor transparency.”

The new bill comes on the back of a series of executive pay scandals in the country.

In March shareholders at Renault, including the French government and its 17% majority stake, voted against a pay package worth €8.5m for president Carlos Ghosn. Though the proposed remuneration was only approved by 46% of investors, the resolution was consultative and had no legal consequence unless Renault’s board decided to take action.The lack of action from Renault prompted ire from the French government, with socialist President François Hollande threatening at the time to implement binding pay votes “if there is no drastic action”, and the company’s board members, who described the firm’s corporate governance as “dysfunctional”.

A similar situation unfolded at PSA Peugeot Citroën just weeks later, where CEO Carlos Tavares’ €5.24m pay packet – double his 2015 remuneration – was described by government officials as “damaging”.

Speaking at the French General Assembly last night, Sébastien Denaja, Socialist Party deputy and the bill’s ‘rapporteur’, said that the whole purpose of the rules, dubbed Sapin II after Finance Minister Michel Sapin, is “to restore confidence between citizens and the political elite”, adding that “difficulties must be shared” by a company’s highest and lowest earners.

Guidelines published in June 2013 as part of the revised AFEP–MEDEF code of corporate governance already recommend French companies to adhere to say on pay votes on a “comply or explain” basis.

Though adopted by many firms and somewhat enforced by the country’s Financial Markets Authority, they lacked the final authority of Sapin II.

The new rules weren’t universally heralded though, with left-wing politician Pascal Cherki dubbing them “cosmetic”.

With reporting by Margaux Gatty.