France caps CEO salaries
PARIS, 1 June, 2012: France’s new Socialist government is moving to clamp down on executive pay at state-owned companies starting with severance payments of former Air France CEO and president.
President Francois Hollande’s government has vowed to announce measures by mid-June capping salaries for top executives at no more than 20 times the pay of a company’s lowest-paid worker.
The move follows other popular and symbolic steps by the Socialists, including a 30% pay cut to the salaries of the president and ministers and promises of a 75% tax rate on salaries over a million euros.
The government set the tone at an Air France-KLM shareholders meeting on Thursday by opposing a 400,000 euro (US$496,000) indemnity paid to former CEO Pierre-Henri Gourgeon and urging him to return it.
Mr Gourgeon was appointed CEO of the airline, in which the state holds 15.8%, in January 2009, but resigned in October amid rising losses. The 400,000 euro indemnity was part of a 1.4 million euro severance package.
Some 78.8% of shareholders voted against the payment, but under the French labour code it cannot be rescinded, Air France-KLM executives said.
Government opposition was also instrumental in getting shareholders Thursday to reject a golden parachute for Jean-Paul Herteman, the outgoing CEO of French aerospace group Safran, in which the state holds 30%.
The Socialists had initially said the pay cap would apply only to new contracts but Prime Minister Jean-Marc Ayrault went further this week, saying the measure would also apply to existing contracts, slashing some top salaries by more than half.
“I believe in the patriotism of our executives, who can understand that the crisis requires the political and business elite to set an example,” Ayrault told the weekly L’Express.
Finance Minister Pierre Moscovici said this week it was crucial to “act now” so that the wage gap “is decent, especially when social and economic situations are difficult.”
Majority state-owned firms that would be affected include railway SNCF, post office La Poste, nuclear power plant builder Areva and in particular electricity giant EDF, whose CEO Henri Proglio earns a reported 1.5 million euros a year, which unions have said is 80 times the company’s lowest salary.
The government has said it will also seek to impose the limit at firms where it holds minority stakes, including such leading European companies as energy giant GDF Suez, carmaker Renault and aerospace firm EADS.
“The state will impose this policy of limiting pay scales everywhere where it holds a majority. Where it is not in the majority, it will seek to convince,” Reindustrialisation Minister Arnaud Montebourg said this week.
It was unclear whether the measure would apply strictly to salaries or to bonuses and profit sharing as well, but the move was sure to be popular, with a recent poll showing four out of five in France in favour of the limits.
With joblessness nearing 10% and purchasing power on the decline, the French have been infuriated by executives’ increasing salaries.
A February study by firm Proxinvest showed average salaries for executives at firms listed on Paris’s CAC 40 benchmark index rose 34% in 2010 to an average of 4.1 million euros.
Executives at state-owned firms have hardly welcomed the move, but said they will implement it.
“If the framework changes, we will apply the decisions of the state shareholder,” Areva boss Luc Oursel, whose 680,000 euro annual salary is 30 times more than the company’s lowest, told newspaper Les Echos.
“There shouldn’t be tears, but I recognise that this is steep for some,” outgoing EADS CEO Louis Gallois told Europe 1 radio. “That said, we can get by on salaries that are 20 times the minimum.”
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