The PERNOD RICARD company just presented a "Say on Pay" resolution to its General Meeting; it is the first company to pass such resolution after an agreement was reached between AFEP/MEDEF (representing the companies) and the French government ; the latter eventually decided not to enact about such "sensitive" matter.
The PUBLICIS company was the first this year to propose a "Say on Pay" resolution, and this before the French government's decision was made on the matter.
As far as politics is concerned, let us welcome this first step which finally allows the shareholders to reclaim this sensitive matter, whereas Boards of Directors did not consider such matter as being the responsibility of the General Meeting of Shareholders.
As far as "governance" is concerned, it is unfortunate that the major companies and the governement did not propose measures similar to those already applied in the United Kingdom or currently entering into force in Switzerland.
How can one justify, after the years of distrust that have led many shareholders to not understand why they were denied the right to say on the matter, that the vote be solely advisory and not entail the least decision-making effect? The shareholders of Safran voted no to the severance pay of the CEO by a majority of those present, and yet the Board of Directors considered that the agreement should not be questioned…
How can one justify that variable compensations be granted to the head without any scrutiny right to the shareholders, even though in Switzerland a prior consent of the shareholders is required to do the same.
For many years partnerships (including the listed ones) and limited liability companies are obliged to subject managers' compensations to shareholders' vote. And this works without problems, even if there can be arguments in certain "extreme" cases.
France should show by example and not fear a revolt of shareholders, as if the latter were not able to validate high compensations when a positive result is achieved. And this may well be where the shoe pinches, because variable compensations also imply that the compensation could amount to nothing in case of a bad performance. Unfortunately, very few businesses dare to go that far, hence the variable part of the performance becomes a fixed compensation de facto.
Hopefully this will not be the last step ; still, such a wasted time and so many misunderstanding accumulated, while it would have been much easier to look for our neighboor's solution in a more direct way.
Olivier de Guerre
Chairman of PhiTrust Active Investors