The 2023 general shareholders’ meetings have already started, in the United Kingdom, Germany and the United States. The main issue this year, everywhere in the world, is executive compensation. Companies will have, more than usual, to explain the fixed increases and the arguments for paying bonuses, in a contrasting landscape. Finances are good despite the headwinds, the stock market is in good shape with a CAC 40 which has passed the 7,000 point mark, but inflation is weighing on purchasing power and the announcements of layoffs by the tens of thousands in the United States. United creates a climate of anxiety in Europe.
The first decision to be taken by companies concerns the increase in the fixed part of the remuneration of “bosses”, to cope with the shock of inflation. Companies increased wages by 4.9% in the first nine months of 2022, according to URSSAF. Will they do the same with executive compensation? A Scalens / Avanty lawyers study carried out in November 2022 among the top 250 French companies shows that 44% of them are considering it. For the CAC 40, this roughly corresponds to those which had not made an increase last year.
Except that this year falls badly: investors are more demanding. It is not the absolute values or even the scale of the increases that scare them, in 2022 the double-digit increases of Florent Menegaux at Michelin and Jean-Laurent Bonnaffé at BNP Paribas were voted with more than 90% approval . These are rather the arguments put forward. To justify a fixed increase, financial investors are asking for a major change, the expansion of the scope following a strategic operation, for example.
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The question of social acceptability
Simultaneously, the other stakeholders raise the question of social acceptability. The salary scale stretches in France; the equity ratio (difference between the executive’s salary and the median salary) is 80 in the CAC 40, i.e. 50% higher than its 2019 level. But it remains much lower than the level reached in the United Kingdom (130) and in the United States (300). Admittedly, these stakeholders do not vote, but they increasingly impact another part of the managers’ bonus: the criteria of reputation, local roots, employer brand image are now part of the performance criteria.
The second delicate subject will therefore be the allocation of bonuses. They depend on well-established financial criteria, and more recent extra-financial criteria, ranging from carbon emissions to the management of human capital. Investors demand that these extra-financial performance criteria really reward performance, and not the normal work of the manager, in terms of management or climate strategy in particular. This requirement follows the finding of an average achievement rate of 116% in 2021, according to the IFA. The voting recommendation agency ISS goes further by proposing, for the future, to introduce “negative criteria” in the event of non-achievement of these basic performances, in terms of climate strategy for example.
Exceptional compensation
Another sensitive point, “exceptional remuneration” will no longer be accepted; Stellantis, Danone, Teleperformance, M6 in particular had recourse to it, to manage the unexpected. Investors, surprised, strongly challenged them. This year, the French Institute of Directors (IFA) also strongly recommends not to use it. ISS is the only voting recommendation agency that does not exclude them on principle. The companies that will offer them will therefore have to redouble their pedagogy