Boss pay could now be tied to their company’s climate goals. This is the shock measure of the new governance code for French employers concocted by the French Association of Private Companies (Afep) and the Medef, which together published this guide to good practice on December 20. It recommends that the remuneration of business leaders be calculated “by integrating several criteria linked to social and environmental responsibility (CSR), including at least one criterion linked to the company’s climate objectives”.
To assess the specific question of remuneration, “quantifiable criteria must be preferred”, warn the two entities. There is therefore no question of linking the remuneration of bosses to vague objectives, the achievement of which would be impossible to verify.
This code is not binding and serves only as a recommendation. Nevertheless, almost all of the companies in the SBF 120 stock market index have already adopted the Afep-Medef code of governance. If it is not gospel, it has the virtue of “reminding those who are at the back of the pack that they are exposing themselves to risks”, comments Geneviève Ferone Creuzet, vice-president of the Shift Project, a think tank advocating for the decarbonisation of the economy.
Between 5 and 15% of the remuneration concerned, 20% in the long term
Out of a sample of 50 large French companies, 22 have so far integrated a climate-related performance indicator into their executive compensation policy for 2022, and specified the weight of this criterion in the calculation, according to the Autorité des financial markets (AMF). This performance indicator often corresponds to an objective to reduce the company’s polluting emissions. The part of the salary attached to it represents “between 5 and 15% of the annual remuneration” of the managers, indicates the AMF.
Ultimately, “20% of the variable compensation of executives should be correlated to quantitative objectives for the fight against global warming”, estimated Wednesday on BFM Business the vice-president of Medef, Dominique Carlac’h.
With this in mind, the latest version of the code provides that the board of directors of listed companies “determines multi-year strategic orientations in terms of CSR”. It is then up to the managers of these companies to present an “action plan”, a timetable for implementing it, and to report each year on the progress of this plan to the board of directors.