Board of Directors Compensation: The French Exception

Despite steady growth, compensation for French directors remains significantly below the European average. While these figures have more than doubled over the last eight years, the gap with France continues to widen.

Poor French directors! According to the latest “Corporate Governance in Europe” study (see “Methodology” at the bottom of this page) conducted by Heidrick & Struggles, they are the lowest-paid in Europe.

The fourteen members of Axa’s supervisory board shared a pool of 1 million euros (1) in 2006, while their counterparts on the board of directors of the Swiss insurer Zurich Financial Services were allocated 2.105 million dollars, supplemented by a substantial amount in Swiss francs for their roles on the board of Zurich Compagnie d’Assurances (2). Despite a 23% increase over two years—significantly higher than the 14% recorded in other European markets—France is nonetheless lagging behind. On average, French directors must make do with compensation of 43,500 euros, whereas their European counterparts receive an average of 72,200 euros. Fortunately for them, French directors are highly sought after abroad; indeed, 14.5% of “non-national” directors are French. Above all, they are still permitted to hold multiple board seats simultaneously.

A limit of five terms

Admittedly, the era when they could sit on as many as ten Boards of Directors is now over. In 2001, the NRE law (New Economic Regulations) limited this number to five. This regulation has achieved its intended effects. According to a study (3) by Korn/Ferry International, there is a gradual decentralization of director mandates. While in 1995, 69 directors (18) held 226 mandates (41), by 2006, 95 directors (21) held 205 mandates (36). Furthermore, the firm notes that only two directors hold the maximum number of authorized mandates.

This renewal is not unique to France. Here, as elsewhere—and this is one of the key findings from the Heidrick & Struggles study—Boards of Directors have undergone significant transformations. This begins with the increasing prominence of independent directors. Over the past eight years, driven by a series of scandals that have shaken the business world, their numbers have grown steadily. Today, they represent more than half of all European directors. In this regard, France is on par with other European business hubs. From 36% in 2001, the proportion of independent directors has now risen to 51%.

A female breakthrough to be confirmed

While France performs averagely in terms of independence, it proves to be a top performer compared to its neighbors when it comes to opening its boards of directors to foreign members. Despite undervalued director fees, our boards of directors host 20 “non-national” directors.

Finally, women are gradually making their way into these long-closed circles. In 2007, they accounted for an average of 8.4% of directors, though significant disparities exist between countries. Portugal lags far behind (with only 1% women), while Sweden leads the pack with a rate of 21.3%. France ranks fifth in Europe, with 7.5% female directors. This figure is corroborated by a Korn/Ferry International study, which notes that in 2006, women made up only 7% of the total directors within CAC 40 companies. The study further highlights that 33% of Boards of Directors still have no women in their ranks… Other major groups overlooked by these boards include employee representatives, who account for an average of only 10% of European directors.

Methodology

An exclusive study by Heidrick & Struggles, “Corporate Governance in Europe” is conducted every two years to provide a detailed mapping of corporate governance across Europe. Published since 1999, this study serves as a “barometer” by analyzing the practices of more than three hundred companies in eleven European countries, focusing on Board of Directors composition, management style, compensation, and board evaluations. This study is based on the annual reports of each company, ensuring a unique and reliable overview.

Types of Boards of Directors

• The unitary board is the model used in Great Britain. It brings non-executive directors and the management team together on a single agenda within the Board, typically featuring an independent non-executive Chair and a CEO (Chief Executive Officer).
• The two-tier structure, as seen in Germany and France, consists of a supervisory board and a management board. The former is composed exclusively of non-executive directors. These two bodies are distinct in their composition, operations, and meeting agendas.
• The French Board of Directors is a separate entity from the executive committee, with distinct meetings and agendas. However, certain executives hold positions in both bodies, most notably the CEO, who leads them.