France to end Golden Parachutes for Company Bosses

The proposals have been submitted to the French government in a joint report prepared by Medef, the main employers’ organisation in France, and Afep, a body representing the leading companies on the French stock exchange. In presenting the proposals, Laurence Parisot, the head of Medef, stated that France would now have the most equal, efficient and ethical code of company governance in the western world. The new code proposes an end to unconditional severance packages, which should only be payable where the performance of the company was satisfactory, with the amount of the compensation capped at two years' remuneration. Where the conduct of the French company boss was in question, where they resigned, or where they were involved in the failure of the company, then no compensation should be paid. With company bosses arguing in the past that they were only being paid what was due to them under their contract, the report proposes a quick and easy solution, by declaring that they should no longer be entitled to a contract of employment! The report also tackles the abuse of stock options by proposing that none should be offered to a company boss unless they were also available to employees of the company, or where employees alternatively benefitted from a profit sharing scheme. The award of stock options should also be linked to company performance and should not be granted free of charge. The proposals by Medef and Adep have been in gestation for several months, following a number of scandals in France when company bosses in some leading companies received millions of euros in severance, in one case causing the head of Medef Laurence Parisot to publicly express her own disgust at the size of the payout. The report has been rushed out following a recent public declaration by President Sarkozy who threatened to legislate on bosses pay by the end of the year unless satisfactory self-regulation was introduced. Against the backdrop of the collapse in the world financial system, President Sarkozy has been waging something of crusade on moral capitalism of late, insisting that that there has to be greater responsibility and a new transparency in stock exchange and big business operations. Just to press the point home, when the the French government recently helped bail out the troubled Franco-Belgian bank Dexia, they stipulated that it would be conditional on no golden parachute for its departing chairman. The problem for the government with the new code is that there are no sanctions that will be applied to those that breach the code of conduct. Accordingly, the government have given all companies listed on the French stock exchange until the end of the year to formally sign up to the code of conduct, failing which they will legislate. There also remains wider concern in France about the level of remuneration generally to company bosses, with the French socialist party in particular declaring that legislation was required to control the size of the pay packet granted to them.

Medef/Agep make no suggestion about limiting the basic pay of bosses, and there is real concern on their part that any toughening of the code would make it difficult for France to attract international business leaders to the country. In order to head off that possibility Parisot is proposing a more global approach to bosses' pay be taken, by calling for a meeting of the G8 employer organisations later this month.