France: AFEP And MEDEF Revise Corporate Governance Code For Listed Companies: "Say on Pay" Comes To France

On June 16, the two main French business groups, Association Française des Entreprises Privées ("AFEP") and Mouvement des Entreprises de France ("MEDEF"), published a revised version of their joint corporate governance code for listed companies in France (the "AFEP-MEDEF Code"). The AFEP-MEDEF Code was first published in 1995 and last updated in 2010 to make recommendations regarding the representation of women on boards of directors.

Listed companies in France must comply with the corporate governance provisions of general corporate law and may also refer to the recommendations of a "reference governance code." Companies referring to a reference governance code must disclose which code they choose to follow and whether their governance practices deviate from the recommendations set out in such code. The AFEP-MEDEF Code is the code of choice for large cap companies, 1 including all of the companies making up the French CAC 40 Index, and one of the most complete and stringent codes of the OECD member countries according to the AFEP and MEDEF.

The executive officer compensation recommendations of the AFEP-MEDEF Code apply to the chairman, chief executive officer, and deputy chief executive officers of French companies with a board of directors, to the chairman and members of the management board of companies with a two-tier board, and to the manager of a partnership (société en commandite par actions) (referred to below as "executive officers").

The revised AFEP-MEDEF Code provides for the following changes in corporate governance for French listed companies adhering to its recommendations ("listed companies"):

Nonbinding Shareholder Vote on Executive Officer Compensation ("Say on Pay")

Starting as early as the 2014 annual shareholders' meeting, shareholders must vote on the individual compensation of the company's executive officer(s).

Shareholders will be consulted on the fixed portion of the compensation, the variable annual and multiyear portion of the compensation, exceptional compensation (if any), stock options and performance shares, additional retirement benefits (if any), as well as signing bonuses or golden parachutes.

The shareholders' vote will not be binding on the board of directors. However, in the event of a vote against the proposed compensation, the board should first consult the compensation committee and then debate the matter during the next board meeting to decide on any actions to be taken in response to the shareholders' vote. The board should immediately thereafter issue a press release and post it to the company's web site regarding its intended response to the shareholders' vote.

Creation of a High Committee of Corporate Governance (the "Committee")

The Committee's mission will be to oversee the implementation of the governance provisions contained in the AFEP-MEDEF Code.

The boards of listed companies may submit questions to the Committee relating to the interpretation of any provision of the AFEP-MEDEF Code or other governance matter. The Committee may also request companies to explain with greater detail any noncompliance with the AFEP-MEDEF Code's recommendations. If a company does not comply with the Committee's recommendations, it must explain the reasons for such noncompliance in its annual report.

The Committee will be composed of seven members:

  • Four individuals holding or having held an executive position in an international group; the Chairman of the Committee will be appointed from among these four members; and
  • Three experts representing investors and/or chosen for their knowledge of the law or ethics.

The Committee may also propose amendments to the AFEP-MEDEF Code, in light of developing practices in France and abroad, recommendations of the French securities regulator, the Autorité des marchés financiers ("AMF"), or at the request of investors.

"Comply or Explain" Enhancements

The revised Code enhances the preexisting "comply or explain" principle. If a listed company chooses not to apply a particular recommendation of the AFEP-MEDEF Code, it should explain in detail any noncompliance, in relation to the company's specific circumstances, and any alternative measures taken to stay within the intended objectives of the particular recommendation. Any recommendations that are not applied should be mentioned in the company's annual report, along with the relevant explanations for noncompliance.

Employee Representation on Company Boards Encouraged

Employee representatives are encouraged to participate in board committees and are entitled to receive specific training relating to their duties on the board. The revised AFEP-MEDEF Code also recommends that an employee member of the board should have a seat on the compensation committee.

More Demanding Conditions Placed on Executive Officer Compensation

Multiyear and annual variable compensation should be made public and subject to performance criteria, and should be limited to a certain percentage of fixed compensation as determined by the board.

Signing bonuses should be made public and should be granted only to executive officers who are new to the group.

Golden parachutes should be conditioned only on the executive officer's forced departure from the group (e.g., in case of a change of control or disagreement on strategy), should not exceed two years of the sum of fixed and variable compensation, and should be subject to performance criteria evaluated over two fiscal years. Executive officers nearing retirement age should not be eligible for a golden parachute.

Noncompete indemnities should be approved by the board, after extensive review by the compensation committee. Such indemnities should be made public and should not exceed two years of the sum of fixed and variable compensation. Where an executive officer is eligible for a noncompete indemnity and a golden parachute, the two indemnities combined should not exceed such cap. The board should decide whether to grant such indemnity at the time of the beneficiary's departure and should be able to waive the indemnity at any time.

Additional retirement benefits should not exceed 45 percent of base compensation. Annual increases should be limited to 5 percent of the beneficiary's compensation. The pool of beneficiaries should not be limited to executive officers, and beneficiaries must have been with the company at least two years before being eligible for additional retirement benefits.

The grant of stock options and performance shares should be subject to both internal and external performance criteria, and beneficiaries should be required to hold a substantial amount of stock options and performance shares until the end of their terms of office.

Limitation on Number of Directorships

Executive officer board members should not hold more than two other directorships in listed companies outside the group, including foreign companies. All other board members should be limited to holding four directorships in other companies outside the group, including foreign companies.

Formal Commitment Not to Use Any Hedging Instrument

Since 2009, the AMF has suggested that executive officers formally commit not to use option hedging instruments and that the issuer disclose such commitment in its annual report. While the 2010 update to the AFEP-MEDEF Code already contained a recommendation that executive officers not use hedging instruments to cover their risk on options or performance shares, the revised Code went a step further, adopting the AMF's suggested language and recommending that executive officers formally undertake not to hedge options, shares issued from the exercise of options, or performance shares until the end of the holding period for such securities.

Calculation of Number of Independent Directors Modified

The AFEP-MEDEF Code modifies how companies should calculate the ratio of independent to non-independent directors. Under the new method, directors representing employee shareholders or employees should be excluded for purposes of determining the percentage of independent directors.

The revised AFEP-MEDEF Code provides broad principles-based recommendations to French listed companies. Companies should begin considering the impact of these recommendations, specifically with respect to executive officer compensation, sufficiently in advance of their 2014 annual shareholders' meeting. Special attention should be paid to disclosures on compensation as a means of developing sufficient shareholder support in advance of the annual shareholders' meeting, in particular if there are any red flag issues that could result in negative votes. Experienced legal counsel can assist in evaluating whether executive officer compensation packages comply with the revised Code, drafting "say on pay" disclosures and resolutions, and managing the company's dialogue with shareholders and proxy voting advisory groups.


1. The MiddleNext Corporate Governance Code is specially adapted to small and mid-cap companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions