France’s new president, Francois Hollande, has made it clear that large pay gaps are no longer acceptable, at least when it comes to state-controlled businesses. This week, Hollande and Prime Minister Jean-Marc Ayrault announced that all companies controlled by the state will now have a 20:1 pay gap rule.
This new rule means that any CEO or head of a state-controlled business cannot earn more than 20 times the lowest paid employee in that same company. This move means that many CEOs will see a gigantic change in the amount they make. Time notes that Henri Proglio, the CEO of electricity company EDF, will see a 68 percent cut to his salary.
The move will affect about a dozen top managers in companies connected to the government, such as the railway SNCF, and the post office system La Poste. The move was made in order to set an example for pay ratios throughout the rest of the country. The Guardian quotes Jean-Marc Ayrault as stating, “I believe in the patriotism of company leaders. They can understand the crisis requires the political and financial elite to set an example.”
The new president and his cabinet have officially cut their salaries by 30 percent and the new rule for company CEOs goes into effect next month. This new measure goes hand-in-hand with Hollande’s hopes to reform the tax system. He hopes to place a top tax of 75% on those earning 1 million euros or more.
Both of these unique moves come in the wake of financial hardship throughout Europe. Spain, Greece and Italy have all faced catastrophic unemployment numbers and difficult government and bank loan issues. Hollande hopes that these reforms will spur on economic growth and encourage a fairer pay system in France.
Hollande has only been in office for a number of weeks but his socialist government looks to be at the center of any new changes coming out of discussions in the European Union. He has already challenged Angela Merkel on a number of austerity measures in European Union meetings in the month of May. While Merkel stands firm that austerity measures need to be instituted, Hollande hopes to encourage new growth through tax reform and some government spending.
His new measures also contrast sharply with tax and pay gap discussions going on in the United States election debates. Mitt Romney wants to eliminate most investment taxes and keep the current 15 percent capital gains rate for households making more than $200,000.
President Obama wants to raise these numbers and place more of the tax burden on the wealthiest households. Romney, on the other hand, claims that any increase in taxes, even on the wealthiest top percent of households, risks damaging the economy. His stance on capital gains and a slowing of investment and growth has no substantial evidence, according to research posted in Bloomberg Businessweek.
Hollande’s move to push the government leaders to set an example for the rest of the country may stop at just that. It is difficult to tell if the new measures will have any effect on private companies and CEOs. Hollande seems to hope the standard set by government officials will shame some business leaders into making a change in pay gaps.
At the very least, Hollande’s strong stance on taxes, austerity measures and top pay have changed the tone in the European Union. As Reuters notes, Hollande opted to meet with Spanish Prime Minister Mariano Rajoy this month before a summit of European leaders. Traditionally French and German officials hold a small meeting together before meeting with the rest of the EU leaders. Hollande refuses to be strong-armed into submission by Merkel or Britain’s David Cameron, and his stance is making an impression.
Photo Credit: Kenji-Baptiste OIKAWA