While the average CEO compensation in CAC 40 grew by 14% in 2017, according to the compensation report just published by Proxinvest, Pernod Ricard’s Board proposes to increase its CEO’s fixed compensation by 16% for the new FY.  Proxinvest recommend shareholders oppose this growth.

  • An inflationary growth

 This 16% growth represents an annual weighted average growth of 4% since the nomination of Alexandre Ricard as the Chairman-CEO in February 2015. This average growth is excessive and greater than the French inflation which has grown by 2.4% since Alexandre Ricard’s appointment. According to Proxinvest’s guidelines, the compensation’s growth shouldn’t be greater than the inflation’s growth.

This 16% increase of the fixed compensation will have a strong inflationary impact on the bonus which cap is based on the fixed compensation (maximum of 180%, € 1,980,000, +16%) and also on the long-term incentives (stock-options and performance shares) which cap is also based on the fixed compensation (maximum of 150%, € 1,650,000, +16%).

  • A questionable choice to use “benchmark” for a member of the family managing the company

The company explains that this growth is justified by two external compensation consulting firms.

These firms explain that this growth is just a way to catch up with the compensation given to the CEO in the CAC 40 and the CEO of companies in the Beverages sector.

Yes, the new fixed compensation (€ 1,100,000) is in-line with the new level of fixed compensation of the CEO in the CAC 40 according to the last compensation report made by Proxinvest. However Proxinvest finds odd that Alexandre Ricard, member of the family managing the company, uses a benchmark with other CEOs who aren’t part of the main shareholders. As a member of the family main shareholder, Alexandre Ricard is already strongly committed to the company’s success; therefore, considering his family-based affectio societatis, he could still manage the company while only receiving one or two millions as a total compensation. The use of external compensation consulting firms has become more common in the last few years and has an inflationary impact on the CAC 40 CEOs compensation without real link with their results.

  • A growth that strongly diverge from the growth of his employees’ compensation

 In its last report on French listed companies CEOs remuneration, Proxinvest highlights the fact that the average CEO total compensation increase (+14%) is greater than the employees’ (+4%). In Pernod Ricard’s case, the CEO’s 16% increase strongly diverges from the employees’ 1.47% increase since FY 2014-2015. 

  • A compensation policy short-term oriented

According to Proxinvest, the compensation policy is too much short-term oriented: the bonus’s target represents 110% of the fixed compensation which exceeds our 100%-limit. Moreover, bonus can reach a maximum of 180% of the fixed compensation,  i.e. € 1,980,000. It exceeds our 150%-ceiling.

Lhe long-term incentive can reach a maximum of 150% of the fixed remuneration. Therefore, STI can be greater than LTI; such a structure is not in line with the company and shareholders long-term interests.

Furthermore Proxinvest estimates that stock-options and performance shares performance criteria could be improved and be more challenging. Moreover, an annual measurement of performance, even if made over a 3-year period, is not comparable to a 3-year period measurement and seems less challenging. Proxinvest estimates the share performance comparison criterion is not sufficiently challenging as a performance just above the panel median can allow for a 66%-vesting. As a comparison, in Diageo’s plans, the same criterion would allow for only 20%-vesting.

  • Conclusion and Recommendation

As a conclusion, Proxinvest recommend shareholders oppose this growth under item 10 of the November, 21st 2018 Pernod Ricard’s AGM.

Even if the Ricard family will certainly use its multiple voting rights to ensure that this growth is approved, shareholders now shares with the board a responsibility in the CEO’s compensation increase in France since the Sapin 2 law. Therefore, any responsible shareholder have to take position on this matter and have to exercise its right to vote, even if it’s against the founding family.


Proxinvest’s report is available for purchase on the web platform: ResearchPool.

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