Benchmarking executive compensation packages against those of selected peers is an important step in determining the remuneration level and the compensation structure.

However, for several reasons, benchmarking is not sufficient to design executive packages.

  • At the individual level, a well-designed compensation package is key to motivate, engage and retain executives; at corporate level, it is a structural lever to support the design and implementation of value-creating strategies and facilitate change.

    Performing executive compensation practices result from a demanding design process that integrates the specific corporate strategy and values ; this process cannot simply rely on copying and pasting external practices obtained through benchmarks.

  • Executive remuneration packages have become increasingly complex and diversified, and peripheral components have become critical. Corporations have to make sure that compensation packages make executives feel incentivised and safe (retirement, social security, D&O cover, breach of contract provisions…). Optimised packages need to offer an attractive payout-to-cost ratio when business goals are successfully achieved, possibly integrate individual preferences and reduce “line losses” due to social charges and taxes both at individual and corporate level.
  • Taxes and social charges that apply to remuneration in France have become volatile and occasionally exorbitant. Preferential treatment that was traditionally applied to specific compensation items (equity-based compensation, retirement…) has ceased: convergence with cash compensation has not only been achieved but taxation occasionally goes the other way

    Companies need permanently consider if they should adjust their remuneration practices to these changes, particularly regarding equity-based payments.

  • Under the pressure of investors, public opinion, media, regulators, expectations regarding executive remuneration are ever rising. This also holds for Board members as a result of the evolution of corporate governance and their increasing roles and contributions.

    Say on Pay requirements have risen too. Initially introduced in France by the AFEP-MEDEF corporate governance code as a non-binding ex post vote on executive compensation packages, the regulator has since then introduced an ex ante binding vote on compensation principles and an ex post binding vote on actual executive packages.
    Boards and Remuneration Committees need to manage their increased responsibility.

Challenges surrounding executive compensation packages are therefore multiple.

We at ESSERE ASSOCIES can help you address these challenges through our expertise.

The purpose of executive remuneration components

  • Base salary
    • Provide a market-competitive guaranteed and recurring compensation for fulfilling the ongoing responsibilities of the job
  • Short-term incentives (annual bonus)
    • Incentivise short-term individual and collective performance
    • Ensure market competitiveness
    • Reduce operating leverage of the firm by linking pay to performance
  • Bonus deferral
    • Reinforce link between short-term incentives and sustainable performance
  • Long-term incentives / equity-based payments
    • Align long-term interests of executives and shareholders by providing a stake in the “residual value” of the firm
    • Possibly reduce cash-burn issues (start-ups)
    • Reinforce share ownership
    • Possibly improve tax effectiveness of packages
    • Ensure market competitiveness
  • Perquisites
    • Make executives benefit from the bargaining power of the firm
    • Free executives from administrative burden
    • Possibly improve tax effectiveness of packages
  • Benefits
    • Protect executives (civil and criminal liabilities, professional and personal risks…)
    • Make executives benefit from the bargaining power of the firm
    • Possibly improve tax effectiveness of packages