Don’t call it the revenge of France’s 99% just yet. But some top French business moguls do look set to feel a painful pinch in their bank accounts as a result of Socialist President François Hollande’s efforts to close the country’s widening wealth gap.
Hollande’s fellow Socialist Prime Minister Jean-Marc Ayrault said in a May 30 interview with newsweekly l’Express that new regulations will soon be imposed on state-controlled companies to prohibit top executive salaries from exceeding those of lowest-paid employees by a ratio of 20:1. Were that not enough to send shudders through the pinstripe set, Ayrault also said the rules will not only apply to newly hired managers at public businesses, but also extend to existing contracts.
Hollande’s Robin Hood cabinet didn’t stop there. The previous evening, government officials said they’d seek to block a $500,000 bonus payment to the recently departed CEO of Air France, Pierre-Henri Gourgeon. In doing so, Industrial Recovery Minister Arnaud Montebourg cited the airline’s successive years of losses and a looming cost-cutting plan as a major reason for sanctioning an official “who put the company in grave difficulty.” But Montebourg also said the move was part of wider government efforts to create “rules of salary moderation and decency” to reign in executive pay generally, and work towards closing the wealth gap.
“I believe in the patriotism of managers, who can understand that the [financial] crisis demands political and economic elites set an example,” Ayrault told l’Express, noting limitation of executive pay and increased taxation on France’s most affluent were main platforms in Hollande’s presidential victory this month. “The French people voted on May 6, and company heads are respectful of the popular vote.”
Respectful of the democratic process, perhaps — but just how willing France’s top managers will be to let their salaries get scaled back has yet to be seen. Indeed, some of France’s best-known executives have much to lose in the squeeze on their current pay. For example, Henri Proglio, CEO of electricity giant EDF, stands to see his annual salary slashed by 68%, or from $1.9 million to $621,000. That’s the cut that would be required to bring his take-home package in line within the 20:1 ratio to the EDF’s lowest-paid worker (who earns $31,000 per year). Similarly, Areva president Luc Oursel risks having his current salary of $849,000 plunge by 49% under the new rules. Jean-Paul Bailly, head of France’s vastly diversified postal service, La Poste, would also be in for a 41% cut in pay. In all, it’s estimated that nearly a dozen top managers at the 52 companies in which the French state retains sufficient capital or board control to impose the new limits would see their pay reduced as a result.
But, even in those cases, legal challenges may stymie the process. It’s even possible that short-changed executives may seek protection from these unilateral remuneration cuts mandated by labor tribunals—chambers in which bosses are usually cast as villains by lower-level employees complaining of similarly unfair treatment. If push comes to ultimate shove, however, targeted managers may simply refuse to lower their salaries, ride out current contracts until they expire and aren’t renewed, and make the jump into private sector companies—where pay is generally higher anyway.
It’s also possible such confrontation may be avoided by accounting creativity that does little to address France’s wealth gap. Though the impending rules are sure to put a hurt on base salaries exceeding the 20:1 spread, there’s been little indication thus far that the government plans to slap similarly crippling limits on wider executive income. That appears to leave a loophole for salary-deprived CEOs to have their performance incentives and bonuses increased as a means of offsetting the drop in base pay. The room for such inventiveness is even larger at companies the state has a stake in, but doesn’t control enough of to regulate or cajole into complete compliance.
That may wind up being the case with the contested Air France bonus. While cabinet officials said they’d use the state’s 15.9% stake in the crisis-hit airline to oppose paying the $500,000 goodbye handshake to Gourgeon (approved while conservatives were still in power), they still may not have enough weight on the company’s board to block it. An even bigger challenge awaits government plans to eventually get private companies to apply the limitations on executive pay that will soon be slapped on public groups. It’s unlikely many (if any) would adopt those voluntarily, and legislating such restraints would face enormous hurdles.
Yet as Hollande has noted, efforts to right France’s imbalances must begin somewhere—and can carry much weight in the public eye even when it’s largely limited to symbolism. That’s a main reason why one of Hollande’s first moves upon appointing a new government was to cut his salary and those of his cabinet by nearly 30%. Now, he’s extending that logic to the top levels of France’s public sector. That may not suffice in getting the nation’s biggest private companies to follow suit, but it may allow Hollande to scold and shame all hold-outs in the court of French public opinion. And if nothing else, it will give France’s 99% a bit of satisfaction at seeing some of the country’s biggest money makers have to sweat about the fate of their next pay checks.