Sapin II Law: The “Say on Pay” principle introduced in the Commercial Code

By Lilia Rusnac, Compliance Department Manager – FLA Consultants

The law of 9 December 2016 on transparency, the fight against corruption and the modernization of the economy, known as "Sapin 2" intends to introduce the principle of “Say on Pay”.

This mechanism gives shareholders the right to review the compensation of executives of listed companies. The introduction of this mechanism in the Commercial Code makes the shareholder vote binding.

The decree of March 16, 2017 introduced two new articles in the Commercial Code (Art R. 225-29-1 and R. 225-56-1). The decree specifies the elements to be included in the report related to remuneration policy: attendance fees, fixed amount, annual variable, multi-year variable, allocation of stock options, allocation of bonus shares, exceptional compensation, golden hello, severance benefits, retirement benefit, non-compete indemnity, provision of services in another group company, and other kind of benefits.

Concretely, all companies listed on Euronext that have closed their accounts since 9 December 2016 must apply this new text at their next general meeting. Now, by means of the binding vote, the shareholders have a real power to control the remuneration of the managers. In the event of a negative vote, the variable remuneration will not be paid. As this vote is no longer simply an advisory matter, shareholders are armed with a real veto in terms of remuneration, thus counterbalancing the powers concentrated in the hands of the managers.

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