French government still voting against pay at state-owned companies

The AFEP-MEDEF governance code for listed companies is being revised.

Another major “non” on Pay came just before the end of the consultation period on the proposed changes to France’s AFEPMEDEF governance code for listed companies.

The French government, along with other Alstom SA shareholders, voted against the €6.6 million awarded to former CEO Patrick Kron. About 62 per cent of shareholders opposed the pay package, while a majority approved the pay for new CEO Henri Poupart-Lafarge. According to a Bloomberg report, a representative of the body managing the government’s holding said that Kron’s pay did not “conform to the doctrine of the state”. In line with AFEPMEDEF proposed changes, Alstom’s board said it would “assess the reasons for this vote” and “meet within a reasonable time frame” to consider what actions need to be taken.

This is not the first time this year that the government has voted against the pay package of a CEO of a company in which it has significant holdings. It voted against at Renault and Peugeot as well.

Earlier this year, in May, French President François Hollande said that he may legislate to make shareholder votes on executive pay binding if company boards continue to ignore shareholders’ recommendations and the governance code. At the same time, Prime Minister Manuel Valls also said that companies should be forced to abide by negative votes on pay.A couple of days after these pronouncements, AFEPMEDEF announced revisions to France’s corporate governance code based on work by the Haut Comité de Gouvernement d’Entreprise (HCGE).

The HCGE was given oversight of the application of the code’s recommendations. The revisions to the code were made in three areas. The first touted that a negative vote by shareholders would force the board to make changes to remuneration awarded for that fiscal year or to future pay.

Secondly, it proposed increasing transparency surrounding performance metrics for incentives, which should be “stringent, transparent, and aligned with the long-term interests of the company”. Stricter rules surrounding departure packages, like the one rejected at Alstom, were also proposed. AFEPMEDEF said revisions to the code will also require boards to react to negative votes by offering changes to pay within a few weeks, as well as reporting back to shareholders on those changes at the next annual general meeting.

AFEPMEDEF conducted a consultation on the proposed changes – which ran to 8 July. The issuance of the revised code has been postponed until a bill (Projet de Loi sur la Transparence de la Vie Économique) which is being discussed by the parliament is adopted, likely in October this year. The bill contains legislation that may affect the code’s provisions and the code may have to be rewritten to be in accord with it. Although they came too soon after Hollande’s comments to be inspired by them, the proposed changes were widely seen as AFEPMEDEF’s attempt to avoid legislation.