A recent decision of the Court of Appeal of Versailles offers important clarification on the say on pay regime and the conditions for paying departure indemnities to executives of listed companies.
👉 https://www.courdecassation.fr/decision/683fd4c49fc9cbe0b56b0f7d
The court addressed a practical yet sensitive question: Does the payment of a departure indemnity require multiple ex post shareholder votes, or is a single individual vote sufficient?
🔎 Legal Framework: Clear Structure, Subtle Ambiguities
Under French corporate law, the say on pay mechanism involves two stages:
- An ex ante vote on the company’s executive remuneration policy;
- An ex post vote to approve the compensation actually paid or attributed for the previous financial year.
Regarding the ex post vote, the law distinguishes between:
1️ A global resolution on the overall remuneration report;
2️ An individual resolution for each executive, covering all fixed, variable, and exceptional compensation components.
The key question was whether paying a departure indemnity must be supported by both of these ex post resolutions.
⚖️ The Versailles Court’s Position
The Court of Appeal adopted a textual and functional interpretation of the relevant statutory provisions.
It found that:
➡️ the payment of a departure indemnity as an exceptional component of compensation is governed by the single ex post individual vote on the executive’s total compensation.
Accordingly: A negative result on the global compensation resolution, does not in itself block the payment of the indemnity provided that the individual ex post resolution concerning that executive was approved.
This interpretation does not upend shareholder control mechanisms, but rather clarifies how they operate in practice.
🎯 Practical Consequences of the Ruling
This solution leads to several operational insights:
- It enhances the legal certainty of contractual commitments made by the company to its executives.
- It prevents the payment of a contractually earned departure indemnity from becoming hostage to a general vote motivated by broader concerns.
- It confirms that shareholder oversight should focus on the specific approval of compensation awarded to an individual.
The decision is best understood as a refinement of governance practice rather than a fundamental overhaul of the say on pay regime.
🧭 What This Says About Legal Risk Management
This ruling highlights a key point often underestimated by boards and executives:
👉 The real risk does not usually lie at the moment of the vote itself, but in the upstream legal structuring of compensation arrangements.
This is where the legal function plays a central role:
- properly characterizing compensation elements;
- aligning ex ante remuneration policy with ex post approvals;
- drafting indemnity clauses with precision;
- anticipating scenarios where a global vote may be negative while individual votes remain positive.
Far from being a cost center, the in-house legal team becomes a stabilizing force in governance and predictable outcomes.
Source : https://www.courdecassation.fr/decision/683fd4c49fc9cbe0b56b0f7d
