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France’s socialists and a fitting executive pay cap

The French government this week announced plans to cap the salary of public sector chief executives at €450,000 per year. The decree, which will be released by the end of July assuming the socialists win a majority in the parliamentary election run-offs on Sunday, is designed to limit the accumulation of incomes, including fixed and variable compensation, to 20 times of the lowest wages in public sector organisations and state owned companies (ie 22,500 euros a year).

In companies where the French state does not hold a majority stake, the Economy and Finance Ministry will continue to instruct the state representatives in the governance bodies of these companies to offer the same rules of moderation in determining the compensation of executive officers.

For many, like the 10% of the workforce on minimum wage the €1400 gross/month and the 2.7 million unemployed, this ceiling will be considered a tad too generous.

But for others, it is a definite infringement of the right to be a fat cat. Like France Telecom boss, Stéphane Richard, currently on 1.5 million euros a year. He has stated:

When it comes to renumeration policies for senior managers, it is essential to have the capacity to attract talent. Let’s not weaken our companies by an authoritarian imposition of a [salary] cap.’

Of course, the move will be largely symbolic. As Richard, points out, he was 37th place in the ranking of mostly highly paid executives of listed companies (CAC index) in the country. France Telecom is stock market listed but the French state is main shareholder with a 27% stake.

Unsurprisingly, the French fat cats ranking is dominated by the leaders of companies outside the state/public sector. Fattest of all is Carlos Ghosn, boss of Renault who last year got a 133% rise to€ 2.89 million euros and close behind is Pierre Pringuet of Pernod Ricard, who pocketed a 21% rise in 2011, taking his total package to 2.66 million euros.

To be fair, this wage ceiling would sit alongside new Socialist President François Hollande’s highly popular promise of a new top tax rate of 75% on incomes over 1 million euros. The current top rate in France is 41%, rising to 44% on incomes above 250,000 euros and 45% on those earning 500,000 euros.

The Socialists’ approach would make France the least lenient on the rich than anywhere else in Europe. According to OECD figures, Sweden has the highest marginal tax rate at 56.5%, with Germany at 47.5%. And the approach contrasts starkly with the UK, where the right wing Conservative-led government of David Cameron recently announced it would be cutting its top rate of tax from 50% to 45% in April 2013.

Still, if the French Socialists are really after striking a blow for ‘morality and justice’, they ought to take a leaf of the manifesto of the radical Left Front, which proposes a 100% tax rate on earnings over 360,000 euros. Given the sacrifices and misery imposed on the 99% in France, many would feel that, for the 1%, that’s a top income cap that would fit.

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