Pierre Gattaz, head of the French employers' confederation MEDEF and Denis Kessler, its prominent former vice president, have just awarded themselves juicy pay rises even as they call for wage restraint from workers. The moves risk undermining the socialist government's so-called Responsibility Pact and its efforts to persuade left-wing doubters in its own ranks to support cuts in public spending and tax credits for business.
Gattaz, 54, who was elected as president of MEDEF last July, granted himself a 29% pay rise as chief executive officer of Radiall, an electronic connectors maker co-founded by his father, taking his annual remuneration to 426,000 euros. Kessler, 62, CEO of re-insurer Scor and widely seen as MEDEF's ideological guide, obtained a 28% rise in the variable part of his salary – the part that includes such items as stock options and preference shares - to 1.3 million euros, giving him a total annual remuneration of more than five million euros.
The revelation of these pay rises last week provoked an outcry and earned Gattaz a personal and public rebuke from President François Hollande in an interview on BFM TV which happened to fall the day after Gattaz's pay rise was revealed by Le Canard Enchainé. But Gattaz, who said in a later interview on BFM TV on Wednesday May 14th that the bulk of his raise was in the variable part of his remuneration and only 3% in fixed salary, remained unrepentant on his blog.
Enlargement : Illustration 1
“This double language is irresponsible. It was Pierre Gattaz himself who called for moderation on the employers' side. And he is doing exactly the opposite,” says Juliette Méadel, the Socialist Party's (PS) national secretary for industrial policy. “He does not keep his promises. Symbolically it is disastrous. Trust has to be created.” She and three other party national secretaries have published an open letter to Gattaz and Kessler, alleging that the sums their respective companies have received as tax credits from the state to bolster hiring and competitiveness are equivalent to three-quarters of the 2013 dividend rise handed on to shareholders at Radiall and to all of Kessler’s 500,000 euro pay rise (1). “At a time when everyone is tightening their belt, all this is intolerable. What is the government's margin for manoeuvre? We need to consider ways of translating the commitments in the Responsibility Pact,” Méadel says.
The furore comes at a crucial time for Hollande's socialist government, which is trying to convince its parliamentarians and members of the PS to back its plan to cut government spending by 50 billion euros to reduce France's debt to within the limits set by the European Union. It is also seeking to further encourage businesses to boost competitiveness and employment by increasing a tax credit voted through last year. The incident appears to confirm the worst fears of dissidents in the ruling party, that the employers are not really interested in playing their part in the Responsibility Pact which Hollande brought in with much fanfare earlier this year, offering reductions in companies' social security charges in return for guarantees on hiring.
Gattaz and Kessler have repeatedly criticised the government's plan, saying that saving 50 billion euros from the state's budget is not enough and more reforms are needed. Gattaz last month proposed a transition salary below the current minimum wage (9.53 euros an hour or 1,445 euros a month full-time) for young people entering the workforce. Kessler, interviewed on BFM Business TV in January, questioned the validity of some sacred cows in the French workplace, including the 35-hour working week, special pension regimes and the length of time over which unemployment benefits are paid. And both men have implicitly floated the possibility of dismantling the minimum wage.
It seems likely the bosses' pay rises will reignite worries among socialist MPs, the Left in general, trade unions and economists over the government's policy of lifting the weight of charges imposed on businesses. Is this kind of behaviour a foretaste of things to come? Will the extra 30 billion euros for business, combined with the 175 billion already granted in lower social security charges and existing tax breaks, simply be used to increase dividends and bosses' pay packages rather than being ploughed into investment and creating jobs?
Unfortunately, France's captains of industry do not, in general, set a good example on this front. In May last year the then finance minister, Pierre Moscovici, decided against a law limiting bosses' pay even though this was one of Hollande's campaign promises. Instead he met Gattaz's predecessor at MEDEF, Laurence Parisot, and Pierre Pringuet, president of AFEP, the Association of French Private Enterprises, who agreed to strengthen their code of governance. “They assured me that they were ready [to make] major advances, notably to recommend 'Say on Pay', [a policy] which would allow shareholders' meetings to have a say on directors' remuneration,” the minister said at the time.
The two employers' organisations did bring out a new code the following November that recommended shareholders be able to vote on directors' packages. But in reality this does no more than allow shareholders to ensure that company directors' interests coincide with their own. And even though the code calls for transparency on all components of directors' pay, there are no sanctions for omitting to detail some of them. On top of that, in France shareholder votes are only consultative, unlike practices adopted in Switzerland or Britain (2). Directors will receive the amounts laid down whether shareholders like it or not. At best, such votes may serve to influence future policy on directors’ remuneration.
'Say on Pay' is being rolled out in annual shareholder meetings this spring, and so far it has to be said that little has changed. Transparency and the vote by shareholders, which were supposed to bring more control and moderation, have not altered the way top directors award themselves excessive pay rises, increases that sometimes bear no relationship to their company's performance. In fact, according to Colette Neuville, president of minority shareholders' association ADAM, the new system is, perversely, working to increase directors' remuneration. “The transparency that ought to be a tool for moderation and control is leading to a corruption of the system. Everyone is comparing from the top and justifying themselves by these comparisons. Because the competitor is paid at this level, there is no reason not to align oneself with him.”
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1. Radiall's net profit rose 33% to 18.5 million euros in 2013 from 13.9 million in 2012. It set a 2013 dividend of 1.50 euros per share, up 30% from 2012. Scor's net income rose 31% to 549 million euros in 2013 from 418 million in 2012.
2. Despite the introduction of a binding 'Say on Pay' in Britain, pay for directors at FTSE-100 companies still rose 14% on average in 2013, though this was down from the 27% rise seen in 2012. In both years variable remuneration such as stock options accounted for much of the increase.
Lagardère pockets 183 million euros, but shareholders still vote yes
Among the more notable cases of recent large pay awards in France is that of Maurice Lévy, CEO of advertising giant Publicis, who was paid 16 million euros in total last year, of which a part was deferred salary. This year he will earn 'just' 4.5 million euros, nevertheless making him the highest paid boss of a CAC-40 company at a time when his company's planned merger with US rival Omnicom has just been aborted.
But this year the prize goes to Arnaud Lagardère, CEO of Lagardère Group, parent of the Hachette publishing empire. His remuneration will exceed 16 million euros. His 2.4 million-euro salary includes a 1.6 million-euro bonus which was increased by 15%. He also receives his part of a statutory dividend equivalent to 1% of the company’s profits that Lagardère Group, which is structured as a limited partnership, pays to all the partners. Last year this dividend came to 900,000 euros, but this year it will be 13 million euros, of which the bulk goes to Arnaud Lagardère.
In addition to his remuneration package, the Lagardère chief will also benefit from dividends paid out to shareholders by the group, of which he owns 9.3%. And Lagardère Group has also paid exceptional dividends to shareholders after selling its stakes in EADS, the maker of Airbus planes, and TV group Canal Plus. Over the past two years these dividends have landed Arnaud Lagardère 183 million euros – which should go some way to repaying borrowings he made over 2007 and 2008 to buy a bigger holding in Lagardère. “Has reducing your personal debt become the group's corporate aim?” an individual shareholder asked him at the annual meeting last week.
The issue of Lagardère's pay also drew the ire of Proxinvest, a consultancy offering independent advice to investors, which advised shareholders to vote against Arnaud Lagardère's remuneration at its annual meeting, saying it was too much. “Enough is enough,” said the consultancy. Shareholders nevertheless approved the Lagardère chief's remuneration with 94% voting in favour – although compared with the 99% votes backing other resolutions, that could almost be interpreted as a protest.
Shareholders are clearly not in the habit of opposing French bosses' remuneration packages. The lowest score in a shareholder vote so far was obtained by Carlos Ghosn, CEO of carmaker Renault, with a 64.3% vote in favour of his 2.6 million euro salary, unchanged from 2013. But he also earns 8.8 million euros as CEO of Renault's partner Nissan. Despite these figures, business daily Les Echos has just published a report saying that annual salaries for the CEOs of CAC-40 companies averaged 2.25 million euros in 2013 and had fallen for the third year running. But this calculation does not include the stock options, free shares and other performance-related emoluments that have formed part of their packages for years.
Some bosses have renounced taking these so-called variable components of their remuneration when the companies they run have encountered difficulties, sometimes major ones. This is true of Martin Bouygues, CEO of the Bouygues construction and telecommunications conglomerate, who is taking no variable remuneration after his group lost out last month to a rival in a bidding war for mobile operator SFR, leaving it vulnerable.
The CEOs of Danone, Lafarge, Orange, Pernod-Ricard and Accor have in turn reduced their variable remuneration after their groups announced disappointing results. But then, that is the least they can do. It would be hard, after all, to take a raise if, like GDF Suez, you had to write down assets worth 15 billion euros.
Even so, poor results and setbacks do not always stand in the way of rewards for top French bosses. Michel Combes, CEO of Alcatel-Lucent, got a 26.36% salary rise to 1.5 million euros although 2013 was another catastrophic year for the telecommunications equipment maker with a net loss of 1.304 billion euros – admittedly less than its 2.011-billion-euro loss for 2012. Patrick Kron, CEO of Alstom, got a raise of over 11% to 2.55 million euros for fiscal 2013-14 although his company's net income fell 28% to 556 million euros.
Banking bosses deserve a special mention. Jean-Laurent Bonnafé, CEO of BNP Paribas, is one of the highest paid CEOs of a CAC-40 company with a 2013 salary of 3.4 million euros, up 20% over a year. Frédéric Oudéa, who heads Société Générale, is close behind with 2.7 million euros, up 8.5%. Jean-Paul Chifflet, CEO of Crédit Agricole, is an also-ran by comparison with 1.9 million in 2013, but his salary doubled that year. François Pérol, CEO of BPCE, a mutual bank, had a salary of 1.4 million in 2013, up over 27% from 2012.
But the bosses of the main French banks did manage to show a degree of 'solidarity' with at least some of their employees. As Europe adopted new rules to limit bonuses for traders and asset managers, the French banks chose to interpret these regulations in such a way as to exclude a portion of their personnel who would normally have been covered by them. They argue that the mere fact of working for an investment back is not sufficient grounds for being governed by the bonus limits they imposed.
As a result, the number of employees caught by these bonus-restricting rules fell nine-fold at BNP Paribas, from 3,250 in 2012 to 357 in 2013. It was divided by eight at Société Générale to 360 from 2,900, by four at Crédit Agricole to 308 from 1,200 and by three at Natixis to 218 from 721. Doubtless the banks felt the need to keep as many bonus options as possible in order to attract the right quality of staff in a competitive market...
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The French version of this article can be found here.
English version by Sue Landau
Editing by Michael Streeter