BY IMANE KURDI France's new Prime Minister, Jean-Marc Ayrault, announced this week that the salaries of top executives in French state-owned firms would be capped to a maximum ratio of 20. This fixes the gap between the lowest and the highest paid in a firm: a CEO cannot earn more than 20 times the salary of the lowest paid worker in his firm. So for instance, the CEO of EDF, Henri Proglio, who earned €1.6 million in 2011, will see his pay go down by 69 percent in 2012. France has a minimum wage, currently set at €16,780 annual pay. The new legislation will set an effective cap on executive pay of €335,600 per annum. It's a clever little trick. Companies where the lowest paid workers are paid the minimum wage cannot pay their executives sky-high salaries without increasing the pay of the lowest on the ladder. It doesn't set a maximum wage as some on the far left regularly suggest but sets a maximum disparity between rich and poor. The argument is: if you can afford to pay massive sums to your executives you can afford to give your workers a better deal. It's certainly a crowd pleaser, particularly if the crowd is not made up of bankers and high-flying executives. President Hollande has already cut ministers' salaries - including his own - by 30 percent. He means to lead by example. He reminds us that these are hard times and tells his voters that everyone has to share the burden, but in a fair way, those who can afford to pay more should pay more, in other words the rich. Hollande is on record as saying he doesn't like the rich. I don't share his dislike, quite the contrary, I think that those who create wealth deserve to be rewarded amply. But this measure I like. Of course it is not new, the maximum ratio existed even back when I did my economics degree a long, long time ago. It is a measure of an ethically run company. Ben and Jerry's for example famously set a ratio of seven, no employee in their company can earn more than seven times another; as good a reason to buy Ben and Jerry's ice cream as those delicious cookies they crumble into my favorite flavor! Mostly I like the idea of a maximum ratio because I cannot, for the life of me, understand what the CEO of a bank like Standard Chartered for example - who earned a reported £8.5 million last year - does that is 500 times more valuable than the work of the humble bank clerk. There is something obscene about it. I don't have a problem with an individual earning 8.5 million. Footballers earn obscene amounts of money, so do film stars, but I get that. Lionel Messi's 31 million euros make sense to me, not just because he is a talented footballer, but because when he plays, people watch football and buy football shirts; he creates massive wealth for his club and it is right that he gets his share of that wealth. And it's not about talent; someone like Paris Hilton who earns millions selling perfume because she knows how to create celebrity around herself deserves to earn those millions if people are stupid enough to want to buy perfume just because her name is on the bottle. Similarly an entrepreneur who comes up with an idea, takes the risk, creates a company, sees it grow and reaps the rewards, should keep the millions his company makes if indeed he is smart enough and lucky enough to create a successful company. But it doesn't seem quite so clear-cut with executive salaries. Again I have nothing against high salaries. Intelligence, ability, hard work and knowledge should be rewarded well, but top level executives are not shareholders, if they mess up, they just get fired - often with a golden parachute! Does their remuneration really reflect shareholder value? The key clearly is transparency, not only understanding what they do, what they get, but who sets it. And the problem is that when institutional investors have so much influence in how companies are run, what we often get is an elite clique that rewards itself, or so it seems. Hollande's 20-step ladder will only apply to French companies where the state is a majority shareholder, though companies where the state holds a stake will likely feel severe pressure to toe the line. Other companies will likely continue on as before. However, a European-level piece of legislation may change that a little. Michel Barnier, the EU's Financial Services Regulator, - who just happens to be French - is proposing legislation that will bind publicly-listed companies to hold shareholder votes on remuneration. Shareholders will be asked to vote to fix the ratio between fixed and variable parts of executive remuneration and to set a maximum ratio between the lowest and highest paid in a company. Rather than have governments set the maximum ratio, it will be up to shareholders. Now that's a pretty neat idea! — Imane Kurdi is a Saudi writer on European affairs. She can be reached at [email protected] __
