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France: Compensation of Financial Market Professionals

(Nov. 18, 2009) On November 3, 2009, the Ministry of the Economy, Industry and Employment (MEIE) of France issued a regulation on compensation of financial market professionals, more specifically, on variable compensation, e.g. bonuses. The regulation is in line with decisions made at the G-20 summit. It was published in the JOURNAL OFFICIEL of November 5, 2009 (France's official gazette). (Arrêté du 3 novembre 2009 relatif aux rémunérations des personnels dont les activités sont susceptibles d'avoir une incidence sur l'exposition aux risques des établissements de crédits et entreprises d'investissement, JOURNAL OFFICIEL, Nov. 5, 2009, available at [conduct a search under Les autres textes législatifs et réglementaires].)

The regulation stipulates that compensation policies may not promote excessive risk-taking. It sets forth the following requirements:

1. Variable compensation must account for a significant fraction of the compensation paid and must be based on criteria permitting measurement of individual or team performance, as well as the financial establishment performance;

2. Bonuses can only be guaranteed for a one-year maximum;

3. A significant fraction of variable compensation must be based upon the company profits and deferred for several years;

4. A significant fraction of variable compensation must be paid in the form of shares that must be held for a minimal period; and

5. Professionals whose performance is unsatisfactory may lose part or all of their deferred bonuses to offset their losses. (Id., art. 31-4.)

The regulation provides that a compensation committee should be set up for each financial establishment by its board of directors to review the annual policy of the establishment and verify that it complies with the MEIE regulation. (Id., art. 38-4). It further stipulates that financial establishments must publish a report each year detailing the process they used to determine their compensation policy. The reports will be forwarded to the Banking Commission. (Id., art. 43-1.)