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.
“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.”
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.