The termination indemnities and supplementary pension scheme for which the corporate officers of L’Oréal may be eligible, as long as they are former senior managers of the company with more than 15 years of service, are not related to performance of the corporate office, but could be due under the suspended employment contract.
Therefore, they are not subject to the approval of the Annual General Meeting of 21 April 2022 under resolution no. 15 “Approval of the remuneration policy for the Chief Executive Officer”.
Shareholders approved these schemes in the context of approving the agreement suspending the executive corporate officer’s employment contract.
This was the case for Mr Jean-Paul Agon by the vote of the Annual General Meetings of 27 April 2010 and 17 April 2018, ruling on the Special Report prepared by the Statutory Auditors.
Shareholders approved these schemes for Nicolas Hieronimus by means of the vote of the Annual General Meeting of 20 April 2021.
The AFEP-MEDEF Code to which L’Oréal refers, recommends, but does not require, that companies should put an end to combining an employment contract with a corporate office.
L’Oréal’s Board of Directors shares the objectives of this recommendation which aims at avoiding the possibility of concurrently obtaining benefits both from the employment contract and the corporate office and at prohibiting any interference with the possibility of removing executive corporate officers ad nutum. The Board of Directors has formally provided for the methods of application of the objectives of the recommendation, as adapted to the context in the L’Oréal Group.
The Board’s intention is to use the treatment set out below for any new corporate officer appointed who has over 15 years’ length of service in the Group at the time of his or her appointment.
As L’Oréal’s ongoing policy is to appoint employees who have completely succeeded in the various stages of their careers in the Group as executive corporate officers, the Board does not want these executives to be deprived of the benefits to which they would have continued to be entitled had they remained employees, after spending many years of their career at L’Oréal.
The Board of Directors has considered that the objective pursued by the AFEP-MEDEF recommendation could be fully achieved by maintaining the suspension of the employment contract and clearly separating the benefits related to the corporate office from those relating to the employment contract.
Remuneration in respect of the corporate office will in no event be taken into consideration in the calculation of all benefits that may be due under the employment contract.
The reference remuneration to be taken into account for all rights attached to the employment contract and, in particular, for the calculation of the pension under the defined benefit scheme is based on the amount of remuneration at the date of suspension of the employment contract. This reference remuneration is revised annually by applying the revaluation coefficient in respect of salaries and pension contributions published by the French state pension fund (Caisse Nationale d’Assurance Vieillesse). The seniority applied will cover the entire career within the Group, including the years spent as an executive corporate officer.
In the event of termination of the suspended employment contract during the term of corporate office, and depending on the reasons for such termination, the executive corporate officer would only be paid termination indemnities, except in the event of gross misconduct or gross negligence, or retirement indemnities in the event of voluntary retirement or retirement at the Company’s request pursuant to the suspended employment contract excluding any indemnity due in respect of the corporate office.
These indemnities, which are attached solely to termination of the employment contract and in strict application of the National Collective Bargaining Agreement for the Chemical Industries (Convention Collective Nationale des Industries Chimiques) and the company-level agreements applicable to all L’Oréal managers, are automatically due pursuant to the public policy rules of French labour law. They are not subject to any condition other than those provided for by the National Collective Bargaining Agreement for the Chemical Industries or the above-mentioned company-level agreements.
In the event of termination of the employment contract, financial consideration for the non-compete clause would be paid under the terms of said contract, pursuant to the provisions of the National Collective Bargaining Agreement for the Chemical Industries, unless the executive corporate officer were to be released from application of the clause. This clause does not apply in the event of voluntary retirement or compulsory retirement on the Company’s initiative: no consideration for non-competition would be paid in such a situation.
The executive corporate officer, subject to ending his or her career in the Company, will benefit from one of the defined benefit schemes currently applicable to the Group’s senior managers. This is the scheme to which he or she was subject as an employee.
As a reminder, the rights to the defined benefit pension are uncertain and conditional on the completion of the beneficiary’s career in the Company. These schemes were established by L’Oréal primarily with the goal of attracting and retaining the Company’s senior managers by guaranteeing them a certain level of resources in retirement.
These schemes falling under Article L. 137-11 of the French Social Security Code, are now closed to any new beneficiaries and no longer create rights as from 31 December 2019 pursuant to French Order no. 2019-697 of 3 July 2019 on professional supplementary pension schemes that transposes the European Directive of 16 April 2014.
The main features of these schemes are explained in detail in section 4.3.2.5. “Offering a motivating and competitive remuneration system” of this document.
They concern over 500 of L’Oréal’s active or retired senior managers, in France, and are financed by contributions paid to an insurance institution. These contributions are deductible from the corporate income tax and are subject to the employer’s contribution as provided by Article L. 137-11, 2a) of the French Social Security Code at a rate of 24%.
In the light of the legal characteristics of defined benefit pension schemes (the rights only accrue if the beneficiary ends his career in the Company and the funding of this scheme cannot be broken down individually by employee) and on account of the characteristics specific to the L’Oréal schemes, known as “differential” schemes since they take into account, in order to supplement them, all the other pensions such as those resulting, inter alia, from the French basic and supplementary pension schemes, the precise amount of the pension annuity will in fact only be calculated on the date when the beneficiary applies for all his pensions.
