Following a European-level consultation on directors’ remuneration, the French finance ministry has launched its own consultation on the thorny question of senior executive pay.
For several years we have been trying to draw company directors’ attention to the risk that the Government might step in to tighten the regulations on their remuneration, both fixed and variable, and even impose limits on it, in response to certain trends that have been frequently criticised by stakeholders and the media. We have proposed, in vain, that this remuneration be submitted to the vote at the AGM as part of the regulated agreement procedure, a practice currently applied to severance pay and pension entitlements, justifying our opinion by pointing out that Government intervention would have a detrimental effect on corporate governance. Unfortunately, most directors explained to us, behind closed doors, that they agreed in principle with our suggestions but were unable to put them into practice unilaterally in the absence of a legal obligation or collective decision by the companies concerned!
In all developed countries, the issue of “unjustified” remuneration has quashed all other considerations as, from one company to the next, the sector environment and the company’s development or difficulties can induce the board to propose remuneration based on management’s “performance”.
It has to be said that certain “abuses”, for want of a better word, have rightly hit the headlines, provoking the whole array of stakeholders into challenging the systems responsible for these excesses and calling into question the credibility of directors and boards supposedly “unable” to solve this delicate issue …
This legislative drift affects us as shareholders, as it shows that governments nowadays are ready to legislate on matters that currently fall within the powers of the board of directors or General Meeting (depending on the country). Incorporating regulations on directors’ pay into the law is not an acceptable solution, however, as it only illustrates the inability of shareholders (most of whom are in favour of limiting directors’ pay) to make themselves heard at the General Meeting.
Should we not “at last” exercise our responsibility as shareholders and insist that the people who are supposed to be representing us propose to the board that directors’ pay be submitted to the vote at the AGM, assuming that we don’t want the Government to decide for us. Or is it already too late…?
Olivier de Guerre
Chairman of PhiTrust Active Investors