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
