Michel Combes’ golden parachute shines light on executive pay

For months, departing Alcatel-Lucent chief executive Michel Combes kept quiet about his future job, batting away repeated questions about whether he was headed to Altice, the telecoms group controlled by Patrick Drahi.

But when confirmation finally came this week, it was not as Mr Combes would have planned it: instead of a discreet departure from the French telecoms equipment maker following its sale to Nokia, he was the talk of the town after it was reported that he would collect potentially €13.7m for services rendered. Even the AMF, France’s financial watchdog, said that it would look into the case.

Executive compensation, in particular golden parachutes, have long been controversial in France. But the issue has become even pricklier since the Socialist Party won power in 2012. A crackdown on big paydays was a central theme of President François Hollande’s campaign, which also included a proposal to impose a 75 per cent marginal tax on incomes above €1m.

Big corporate pay and severance packages have also become more controversial given the wider backdrop of France’s stubbornly sluggish economy and unemployment that continues to be at near-record levels.

Little wonder that Michel Sapin, France’s finance minister, was one of the first to react. Speaking of Mr Combes golden parachute, he told France Info radio this week, “at a given moment, it’s necessary to have some common sense, a little measure, some restraint . . . in this case, Michel Combes has not had any”.

Even Medef, the country’s employers’ federation, was critical. Thibault Lanxade, its vice-president, described the sum as “shocking”. Emmanuel Macron, economy minister, was due to meet Philippe Camus, Alcatel-Lucent’s chairman and acting chief executive, on Tuesday afternoon to discuss the issue.

Mr Combes’ unsolicited attention has come as public — and government — attention has begun to focus more keenly on executive pay levels in Europe. A report last month by the UK’s High Pay Centre said that the leaders of Britain’s biggest companies are paid 183 times that of the average worker in the country — up from 160 times just five years ago.

But a report published by Vlerick Business School in Belgium this year showed that Germany had overtaken the UK as the home of Europe’s top-paid corporate executives.

Across the Vlerick study’s sample of Germany, the Netherlands, France, Belgium and the UK, the biggest determinant of pay was the size of company, with executives at larger companies enjoying higher pay, bigger bonuses and more generous pensions.

Yet corporate pay in the US dwarfs that of Europe. So do the golden parachutes companies hand out to executives facing the prospect of losing their jobs following a merger or an acquisition by another company.

Data compiled by Equilar, the executive pay research firm, showed that golden parachute payments for chief executives of the 10 biggest companies taken over last year could total $430m.

Mr Combes has defended himself, telling Les Echos that the sum was down to a decision to reduce the fixed portion of his salary to €1.2m a year while maximising the “variable” portion, which was linked to the group’s performance.

Insisting that he took on the top job in 2013 when the company was in “quasi-collapse”, he said: “I took on the risk of the industrial project.” Since then, Alcatel-Lucent’s share price has increased from about €1 per share to €2.91 on Tuesday.

In July, it also reported its first second-quarter positive free cash flow since Alcatel merged with US Lucent Technologies in 2006.

Mr Combes was widely praised this year after he negotiated the company’s €16bn sale to Finland’s Nokia.

Questions remain about the appropriateness of Mr Combes’ package given that he was in the job for just over two years. There were also doubts about the timing of the addition of a non-compete stock package, worth an estimated €2.4m of the potential €13.7m at today’s values.

On Tuesday, Alcatel-Lucent said that the remuneration package was compliant with Medef’s code, which, under government pressure, the federation changed in 2013 to include a “say on pay” rules for shareholders and the creation of a special body to oversee compliance.

The enhanced rules also proposed the presence of employee representatives on company boards, including a seat on remuneration committees. They also sought tougher conditions on stock options and other remuneration such as golden parachutes.

But even if it is, the noise is unlikely to die down soon. As Colette Neuville of Adam, an organisation in defence of minority shareholders, put it: “Whatever the conditions of the package, it is an amount that shocks the public.”