France moves to curb share option excess

Sep 21 2006 by Nic Paton Print This Article

France has launched a crack-down on the exercising of employee share options in the wake of a series of high profile scandals over executive pay and questionable share deals.

The move by finance minister Thierry Breton will require company bosses and staff to refrain from cashing in a proportion of their options for as long as they remain in their jobs, the Associated Press has said.

"I believe that these proposals are in companies' interests and in the interests of Paris as an investment centre," said Breton in a radio interview.

Companies issue stock options – or rights to buy shares in the corporation at a predetermined, often discounted price – as a performance-linked incentive for managers and other employees.

But there has been a growing outcry among small investors and the broader French public over the value of some executives' stock-option entitlements as well as the timing of some of their transactions.

Antoine Zacharias was forced out as chairman of construction company Vinci in June after his chief executive, Xavier Huillard, publicly criticized his €50m retirement package and stock options worth about €260m.

Later the same month, Noel Forgeard, the former co-chief executive of European Aeronautic Defence and Space (EADS), came in for heavy criticism after it emerged he made €2.5m exercising stock options just weeks before ordering an internal study of production problems at civil jet arm Airbus.

The firm's shares plunged more than 25 per cent after the problems were disclosed, although Forgeard has denied he was acting on insider information.

Details of the new proposals have yet to be fully worked out and the government has yet to decide whether it should be a company's board or its shareholders who decide on the proportion of stock options that executives are barred from selling while remaining in the job.