Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

"French government opposes executive's large salary" ranks alongside "Pope declares Catholicism cool" in terms of surprise. All the same, French ministers' opposition to the Peugeot Citroen CEO's 5.2 million-euro ($5.8 million) pay package is poorly targeted. 

Bosses who get paid abundantly when a company does badly are fair game, but Carlos Tavares doesn't fit that mold. When the former Renault executive took over as PSA's chief in 2014, the carmaker was reeling from more than 7 billion euros in losses in only two years.

Two years later it's in fine fettle. The 5 percent operating margin it achieved in 2015 ranks as a minor miracle given the low standards of capital-intensive mass-market carmakers. Tavares has slashed fixed costs and PSA's purchasing bill, whilst not cutting corners on vehicle styling (which in turn has helped the company improve pricing).

The Drive of His Life
Peugeot shares have recovered under Tavares
Bloomberg

Of course, he's had luck along the way. The European car market recovery has been much stronger than expected, for example. Nor can he claim all the credit for transforming PSA's bottom line. His predecessor Philippe Varin began the necessary cuts, including wage freezes and a plant closure, that were fundamental to stopping PSA's cash bleed.

Varin also oversaw capital injections by China's Dongfeng and the French state (who each put up 800 million euros for a 14 percent stake) that helped keep the company alive.

Under Tavares' leadership, the value of the government's stake has doubled to 1.7 billion euros, meaning Paris stands to book a handsome profit for taxpayers should it sell.

The French state doesn't have the board votes to block Tavares' pay package, so the discussion smacks of political posturing rather than a serious threat. It's to be expected that a socialist administration should feel discomfort at Tavares's 90 percent pay jump in 2015, seeing as ordinary workers aren't getting raises anywhere near that. Thousands of workers lost their jobs in PSA's restructuring.

But about 2 million euros of his total compensation package comes from share awards that don't vest until 2017 and can't be sold until two years after that. That means he's being held accountable not just for the short-term revival in PSA's fortunes but ensuring it stays that way too. As Gadfly has noted previously, that won't be easy. A weakening British pound, rising emission compliance costs and turmoil in China all present steep challenges.

There's no doubt Tavares' pay package is eye-watering by the standards of production line workers, but it still represents good value compared to other European car executives.

Former Volkswagen chief Martin Winterkorn received 15.9 million euros in pay and bonuses in 2014, which looks grossly unjust given the emissions cheating that went on under his watch. Daimler CEO Dieter Zetsche was awarded 9.7 million euros last year. Thanks to Zetsche, the German luxury carmaker has also returned to form, but Tavares's mass-market turnaround job is arguably the more difficult.

Handsome Handouts
Peugeot CEO's pay lags behind some European competitors but the French governnment is still unhappy
Source: Company reports
*VW pay data is for 2014, Winterkorn has since resigned Note: shows total compensation figure from annual report, which can include stock awards

Anyway, Clipping Tavares' wings by docking his pay by 30 percent -- the kind of cut the French government thinks all executives should stomach at companies where it holds a minority stake -- wouldn't be wise. His departure from Renault in 2013 came shortly after he voiced frustration during a Bloomberg interview that he was unlikely to get the top job there. His achievements at PSA have burnished his CV further.

If the PSA board wants Tavares to stick around to complete the turnaround it would be advised to ignore the Paris bluster and pay him fairly.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net