Control and executive compensation in large french companies

Journal of Law and Society

Volumn 24, Issue 1, 1997, Pages 85-103

  Alcouffe, Alain ^a   Alcouffe, Christiane ^a  

^a UNIVERSITÉ DE TOULOUSE   (France)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0031498351     PISSN: 0263323X     EISSN: None     Source Type: Journal    
DOI: 10.1111/1467-6478.00038     Document Type: Article

References (60)

1. A. Marshall, Principles of Economics (1920) at 520.
2. The discovery of computer information removed by Ignacio Lopez on his departure (with part of his staff) from General Motors in March 1993 initiated the legal action by GM and Opel. Following these attacks, Volkswagen counter attacked in 1996 for libel (see Le Figaro 14 May 1996, viii). But in June 1996, the Celle (Germany) tribunal judges refused to throw out the claim filed by GM against Volkswagen (Le Monde 30 October 1996). In November 1996, Volkswagen sought an agreement with GM (Der Spiegel 26 October 1996). Subsequently, the two companies reached an agreement, and Ignacio Lopez has announced his resignation from VW.
3. H.A. Simon, 'The Compensation of Executives' (1957) Sociometry 32; O. E. Williamson, 'Hierarchical control and optimum size of firm' (196 7) 75 J. of Political Economy 123; O.E. Williamson, The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting (1985).
4. H.A. Simon, 'The Compensation of Executives' (1957) Sociometry 32; O. E. Williamson, 'Hierarchical control and optimum size of firm' (196 7) 75 J. of Political Economy 123; O.E. Williamson, The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting (1985).
5. H.A. Simon, 'The Compensation of Executives' (1957) Sociometry 32; O. E. Williamson, 'Hierarchical control and optimum size of firm' (196 7) 75 J. of Political Economy 123; O.E. Williamson, The Economic Institutions of Capitalism. Firms, Markets, Relational Contracting (1985).
6. American companies have had access to this for a long time. It was introduced into France in 1970.
7. See S. Gray and A Cannella, 'Measuring Executive Compensation: The Case of Stock Options' (1996) Academy of Management J. (special issue, forthcoming) present a comparison of the different methods of evaluating options.
8. E.F. Fama, 'Agency problems and the theory of the firm' (1980) 88 J. of Political Economy 288.
9. B. Holmstrom, 'Managerial Incentive Problems - a Dynamic Perspective' in Essays in Economics and Management in Honour of Lars Wahlbeck (1982).
10. R. Gibbons and K.J. Murphy, 'Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence' (1992) 100 J. of Political Economy 468.
11. A. Alcouffe and C. Alcouffe et al., Propriété et Pouvoir dans l'Industrie (1987).
12. In the second part of this paper, we use the restricted definition of 'groups' given by the COB (the French equivalent of the SEC) that takes into account only control based on a more than 50 per cent shareholding.
13. A. Alcouffe and C. Alcouffe et al., La banque et l'industrie à l'heure des nationalisations (1977); Alcouffe and Alcouffe, op. cit., n. 9; S. Cancel, Alternatives Economiques (mai, juin 1995).
14. A. Alcouffe and C. Alcouffe et al., La banque et l'industrie à l'heure des nationalisations (1977); Alcouffe and Alcouffe, op. cit., n. 9; S. Cancel, Alternatives Economiques (mai, juin 1995).
15. A. Alcouffe and C. Alcouffe et al., La banque et l'industrie à l'heure des nationalisations (1977); Alcouffe and Alcouffe, op. cit., n. 9; S. Cancel, Alternatives Economiques (mai, juin 1995).
16. A.A. Berle and G.C. Means, The Modern Corporation and Private Property (1932).
17. J.R. Cable 'Organization Form and Economic Performance' in Internal Organization, Efficiency and Profit, eds. S. Thompson and M. Wright (1987) at 13.
18. F. Morin, La structure de capitalisme français (1975); Alcouffe and Alcouffe, op. cit., n. 11.
19. F. Morin, La structure de capitalisme français (1975); Alcouffe and Alcouffe, op. cit., n. 11.
20. M. Aoki, 'Toward an Economic Model of Japanese Firm' (1990) 28 J. of Economic Literature 1.
21. id.
22. The advantages given to French firms by their group structure will be greater if minority stockholders cannot prevent re-allocation of resources between the subsidiaries, that is, if the group can organize a kind of financial internal market.
23. M. Viénot, 'Rapport sur le Conseil d'Administration des Sociétés Cotées' (1995) 8 Revue de Droit des Affaires Internationales 935.
24. id.
25. Commercial tribunal, Paris, 2nd chamber, 25 February 1992, Leconte v. Societé Cofavet and others (1992) Revue de Jurisprudence de Droit des Affaires, 372.
26. Cour de Cassation, Criminal Chamber, 20 February 1995. Appeal no. 93-14213.
27. Cour de Cassation, Commercial Chamber, 23 June 1987. Appeal no. 86-13040.
28. M. Despax, L'entreprise et le Droit (1962).
29. A. Couret, 'Le gouvernement de'entreprise. La corporate governance' (1995) 22 Recueil Dalloz 163.
30. Viénot, op. cit., n. 18, at p. 945.
31. J. Saint-Hours, 'Les pouvoirs dans l'entreprise et la régulation des marchés financiers' (1994) 31 Revue d'Economie Financière at 13.
32. COB Bulletin no. 278, mars 1994, 'Information relative à la rémunération des organes d'administration, de direction et de contrôle' 20-1.
33. Indirect compensation consists principally of payments in kind, commitments such as retirement pensions and loans, and the directors' fees paid by other group companies.
34. The group here consists of the companies under its exclusive control.
35. The data concerning remuneration are limited, in France, to the aggregate monetary base payments of the five or ten best-paid executives in the company or group (five or ten according to the size of the company, five if under 200 employees, ten otherwise). No individual remuneration is known, unless the earner choses to disclose it.
36. In France, the fundamental judicial criteria for identifying the contract of employment include the relationship of subordination, the existence of 'technical' as distinct from 'representative' functions, and the receipt of a remuneration specific to the salaried activity; in the context of executive status, these have been the subject of intense debate. The ruling of the Cour de Cassation, Social Chamber, of 2 December 1992, rejected an appeal made by SA Charles Jourdan France and Jourdan Holding AG against a judgment of the Court of Appeal of Grenoble which had confirmed that a salaried employee could hold the post of director while retaining his or her status under the contract of employment. Seen from the manager's point of view, this ruling offers a form of protection against the possible consequences of dismissal. The validity of an employee also being a director is subject to strict conditions which are concerned with the judicial structure of companies as defined in the extensive case-law (see, for example, L. Reiner, 'Les Protections des Dirigeants d'Entreprise' (1995, janvier) Droit et Patrimoine 23; M. Buy, 'Le Salarié Promu', in Les Salariés et les Associés Minoritaires dans les Groupes de Sociétés (1993)) ; these conditions are principally concerned with establishing the priority of the employment contract at the point where the employee assumes executive functions. Where there is a conflict between the two positions, the law currently allows for the contract of employment to be suspended during the period when the employee holds office as a director (see, for example, A. Arseguel, 'Les Dirigeants de Sociétés et le Droit du Travail' (1996, mars) 276 Revue Française de Comptabilité 63. Some grey areas concerning compensation and the rights attached to it (in particular as regards pension rights), however, still remain.
37. In France, the fundamental judicial criteria for identifying the contract of employment include the relationship of subordination, the existence of 'technical' as distinct from 'representative' functions, and the receipt of a remuneration specific to the salaried activity; in the context of executive status, these have been the subject of intense debate. The ruling of the Cour de Cassation, Social Chamber, of 2 December 1992, rejected an appeal made by SA Charles Jourdan France and Jourdan Holding AG against a judgment of the Court of Appeal of Grenoble which had confirmed that a salaried employee could hold the post of director while retaining his or her status under the contract of employment. Seen from the manager's point of view, this ruling offers a form of protection against the possible consequences of dismissal. The validity of an employee also being a director is subject to strict conditions which are concerned with the judicial structure of companies as defined in the extensive case-law (see, for example, L. Reiner, 'Les Protections des Dirigeants d'Entreprise' (1995, janvier) Droit et Patrimoine 23; M. Buy, 'Le Salarié Promu', in Les Salariés et les Associés Minoritaires dans les Groupes de Sociétés (1993)) ; these conditions are principally concerned with establishing the priority of the employment contract at the point where the employee assumes executive functions. Where there is a conflict between the two positions, the law currently allows for the contract of employment to be suspended during the period when the employee holds office as a director (see, for example, A. Arseguel, 'Les Dirigeants de Sociétés et le Droit du Travail' (1996, mars) 276 Revue Française de Comptabilité 63. Some grey areas concerning compensation and the rights attached to it (in particular as regards pension rights), however, still remain.
38. In France, the fundamental judicial criteria for identifying the contract of employment include the relationship of subordination, the existence of 'technical' as distinct from 'representative' functions, and the receipt of a remuneration specific to the salaried activity; in the context of executive status, these have been the subject of intense debate. The ruling of the Cour de Cassation, Social Chamber, of 2 December 1992, rejected an appeal made by SA Charles Jourdan France and Jourdan Holding AG against a judgment of the Court of Appeal of Grenoble which had confirmed that a salaried employee could hold the post of director while retaining his or her status under the contract of employment. Seen from the manager's point of view, this ruling offers a form of protection against the possible consequences of dismissal. The validity of an employee also being a director is subject to strict conditions which are concerned with the judicial structure of companies as defined in the extensive case-law (see, for example, L. Reiner, 'Les Protections des Dirigeants d'Entreprise' (1995, janvier) Droit et Patrimoine 23; M. Buy, 'Le Salarié Promu', in Les Salariés et les Associés Minoritaires dans les Groupes de Sociétés (1993)) ; these conditions are principally concerned with establishing the priority of the employment contract at the point where the employee assumes executive functions. Where there is a conflict between the two positions, the law currently allows for the contract of employment to be suspended during the period when the employee holds office as a director (see, for example, A. Arseguel, 'Les Dirigeants de Sociétés et le Droit du Travail' (1996, mars) 276 Revue Française de Comptabilité 63. Some grey areas concerning compensation and the rights attached to it (in particular as regards pension rights), however, still remain.
39. In France, the fundamental judicial criteria for identifying the contract of employment include the relationship of subordination, the existence of 'technical' as distinct from 'representative' functions, and the receipt of a remuneration specific to the salaried activity; in the context of executive status, these have been the subject of intense debate. The ruling of the Cour de Cassation, Social Chamber, of 2 December 1992, rejected an appeal made by SA Charles Jourdan France and Jourdan Holding AG against a judgment of the Court of Appeal of Grenoble which had confirmed that a salaried employee could hold the post of director while retaining his or her status under the contract of employment. Seen from the manager's point of view, this ruling offers a form of protection against the possible consequences of dismissal. The validity of an employee also being a director is subject to strict conditions which are concerned with the judicial structure of companies as defined in the extensive case-law (see, for example, L. Reiner, 'Les Protections des Dirigeants d'Entreprise' (1995, janvier) Droit et Patrimoine 23; M. Buy, 'Le Salarié Promu', in Les Salariés et les Associés Minoritaires dans les Groupes de Sociétés (1993)) ; these conditions are principally concerned with establishing the priority of the employment contract at the point where the employee assumes executive functions. Where there is a conflict between the two positions, the law currently allows for the contract of employment to be suspended during the period when the employee holds office as a director (see, for example, A. Arseguel, 'Les Dirigeants de Sociétés et le Droit du Travail' (1996, mars) 276 Revue Française de Comptabilité 63. Some grey areas concerning compensation and the rights attached to it (in particular as regards pension rights), however, still remain.
40. Dossier Challenges, 'Les Vrais Salairés des Grands Patrons (1995, octobre) 56.
41. Viénot report, op. cit., n. 18, at p. 943.
42. Our research consisted of submitting a comprehensive questionnaire to a sample of management consultants, chief executives, remuneration committees, and directors of human resources. These questionnaires will be followed by a further postal enquiry.
43. See, for example, the ruling of the Cour de Cassation, Commercial chamber, 4 July 1995, which reiterates that the compensation allocated to the chairman (in this case in the form of a supplementary pension scheme) has to be debated by the board as regards both the amount and the relevant terms and conditions.
44. B. Pigé, 'Politique de Rémunération des Dirigeants et Performance de l'Entreprise, Une Synthèse de la Litterature.' Actes des Journées IAE (1992) 241-58.
45. id., pp. 253-54.
46. L.R. Gomez-Mejia, 'Executive Compensation: A Reassessment and a Future Research Agenda' (1994) 12 Research in Personnel and Human Resources Management 161.
47. This is the effect of an important recent ruling of the Versailles Court of Appeal (15 May 1995) overturning a scheme linking executive pay to sales. See, also, Recueil Dalloz Sirey (1987) 404-10, n. M. Boizard.
48. Enjeux, June 1995.
49. J. Arthuis et al., Rapport d'Information fait au Nom de la commission des Finances, du Contrôle Budgétaire et des Comptes Économiques de la Nation sur les Plans d'Option de Souscription ou d'Achat d'Actions (1995).
50. id., pp. 40-1.
51. id., p. 41.
52. id., p. 29.
53. id., p. 39.
54. Hay Group, 1993.
55. Gomez-Mejia, op. cit., n. 38.
56. B. Pigé, 'La politique de rémunération en tant qu'incitation à la performance des dirigeants' (1994) 95 Revue du Financier 44.
57. Dossier Challenges, op. cit., n. 32.
58. G. Charreaux and J.-P. Pitol-Belin, Conseil d'Administration (1990) at 104.
59. Viénot report, op. cit., n. 18, at p. 943.
60. G. Gelard, 'Du Goodwill aux Provisions: Critique de la Prudence' (1996, Avril) 277 Revue Française de Comptabilité 29.