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The 2019 season marked the second opportunity for French shareholders’ to cast retrospective binding votes on executive compensation. And for the first time, shareholder votes prevented the payment of a bonus award, as well as the implementation of a new pay policy.

In many markets a say-on-pay vote is offered, but under Sapin II legislation, which came fully into effect in 2018, French shareholders get several “says” on remuneration arrangements. The variable payments due to each executive are subject to a series of “ex-post” binding votes (one for each executive) and there is an annual “ex-ante” binding vote on the intended remuneration policy for the current year. In addition, shareholders also get forward-looking advisory votes on severance arrangements.

It’s the binding “ex-post” vote that has drawn the most attention — in particular, the potential implications of how a rejection could affect the organisation, with several possible scenarios. How would an executive react to such a public rebuke from shareholders? To losing the bonus they thought they had earned? Would the board take emergency measures and what could these be, or would continued service prove untenable, prompting an immediate resignation? In 2018 there were several backward-looking compensation proposals that came close to providing answers, with Teleperformance, Vinci, Renault, Technicolor and Atos coming close to failing. But it wasn’t until this year’s shareholder meeting of SBF120 listed CGG, specializing in geophysical services, that shareholders got to see the implications of voting down a CEO’s pay. Well, sort-of.

After changing CEO early in the fiscal year, CGG had a number of proposals covering executive pay on the agenda. Shareholders received two binding, backward-looking votes, covering the FY2018 variable remuneration due to both the current and former CEOs, as well as one binding, forward looking vote, covering the proposed FY2019 remuneration policy of the current CEO, and one advisory forward looking vote on post-termination severance arrangements.

Shareholders voiced their dissent across the board. Support for executive pay proposals ranged from a high of just 56.65% to a low of 38.63%, with two voted down. These were the ex-post, binding vote on the remuneration due to the former CEO Jean-Georges Malcor for fiscal year 2018, and the ex-ante, binding vote on the 2019 remuneration policy for the current CEO, Sophie Zurquiyah.

Besides being historic, the ex-post rejection was somewhat surprising. Mr. Malcor’s variable package contained no surprises and only represented a small fraction of his total quantum for the year. Payment of a €75,000 extraordinary award in respect of a successful debt restructuring may have been viewed as somewhat questionable, especially after CGG decided to pursue a new strategy after his departure in order to recover from a record of poor financial performance. However, the payment was relatively modest, particularly in comparison to the total of €1,626,673, that Mr. Malcor received in respect of fixed salary and a non-competition agreement (the ex-post votes under Sapin II do not cover fixed remuneration). Also surprising was that the award was not unexpected, having been clearly disclosed as part of Mr. Malcor’s forward-looking binding remuneration proposal, which received 96.90% support at the 2018 meeting.

With only 53.52% support, the binding proposal covering variable remuneration due to the current CEO, Sophie Zurquiyah, narrowly avoided the same fate. The binding, forward-looking proposal covering the remuneration policy intended to apply for the current fiscal year was not so fortunate, garnering just 44.3% support. The consequences of this vote are more transparent, and nowhere near as potentially far-reaching, as that of the “ex-post” vote. Instead of the policy terms that had been proposed, Ms. Zurquiyah’s remuneration will continue to be determined by the company’s existing policy, previously approved by shareholders at the 2018 AGM. That may ultimately suit shareholders – while the company had not proposed any material changes to the existing policy, specific details of the 2019 iteration were not fully disclosed.

The company has issued a press release acknowledging the vote results and stating that the board “will consider the adjustments to be made to the Chief Executive Officer’s remuneration policy in order to obtain the shareholders’ approval at the next General Meeting.” It’s unclear if that consideration will include an engagement programme to garner feedback from investors – or what will happen if and when French shareholders reject the variable pay due to a current, rather than former, CEO.

This article was originally published on the Glass Lewis website, 23/07/2019. You can read the article here: https://www.glasslewis.com/proxy-season-lookback-cgg-marks-first-binding-non-on-pay-in-france/ 

About the Author

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Iris Bucelli
Senior Research Analyst at Glass Lewis & Co.,

Irene joined Glass Lewis as Corporate Governance Analyst for Continental Europe in 2017. She specialises in executive compensation analysis of French blue-chip and mid-cap companies. After completing a Masters Degree at the University of Bologna, she worked on international projects in Italy, France and Spain, before landing in Ireland.

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