Crossing Borders | France Unlocked – Issue #4

Management Packages in France Why Incentives Are Never Just Economics

Management Packages in France – A Different Legal Game

In international M&A and private equity, management packages are often treated as a technical matter — a question of percentages, upside, and alignment. In France, they play a very different role.

They sit at the intersection of corporate law, tax law and labour law, in a legal culture where the qualification of a gain matters more than the intention behind it. What is considered a legitimate entrepreneurial reward in the U.S. or the U.K. may be viewed, under French law, as deferred remuneration — even when everyone agrees on the economic logic.

1. In France, Incentives Are Never Neutral

In common-law systems, courts often focus on:

• commercial reasonableness,
• alignment of interests,
• and good faith behaviour.

French law follows another logic. The central question is not why the incentive exists, but what it really is. French authorities ask:

• does the gain arise from capital at risk?
• or from the performance of work?

This distinction is foundational in French legal culture — and it drives the entire analysis.

If an incentive is perceived as functionally linked to employment, it risks being treated as salary, regardless of its contractual form.

2. Capital vs Labour: A Core French Distinction

The divide between capital income and employment income is particularly sharp in France.

Unlike more flexible jurisdictions, French law does not tolerate grey zones:

• capital gains are rewarded as such,
• remuneration is taxed and charged as remuneration.

Management packages often fail when they blur this line.

Typical risk factors include:

• exit mechanisms overly dependent on continued presence, without corresponding shareholder risk,
• performance conditions that overshadow genuine ownership exposure.

The result can be brutal: a mechanism designed to incentivise value creation is reclassified as salary years later, with retroactive tax and social charges.

When an advantage granted to a manager is closely linked to the performance of professional duties, it may be characterised as remuneration, even if formally structured as equity.

3. BSPCE: A French Tool, With French Limits

BSPCE are often perceived abroad as a simplified stock option regime.

They are not.

They are a strictly French instrument, designed for specific profiles and specific stages of development.

Recent reforms have reinforced this logic by:

• clearly isolating the benefit linked to employment,
• and separating it from pure capital gain.
• BSPCE work best when they reflect early-stage risk-taking and genuine entrepreneurial exposure. Used as late-stage exit leverage or quasi-bonus, they lose both efficiency and security.

French specificity: a tool created to encourage entrepreneurship is carefully policed to prevent disguised remuneration.

4. Free Shares: Why “Skin in the Game” Matters

Free share awards are often viewed as conservative and low-risk.

In practice, French companies — and investors — have learned that 100% free equity rarely creates true alignment.

Increasingly, free shares are:

• combined with a personal investment,
• structured with long vesting periods,
• and designed to expose managers to both upside and downside.

This reflects a broader French principle: capital gains should reward capital risk.

When free shares are anchored in investment, they become more than an incentive — they become a governance tool.

5. What Works in France: Coherence Over Creativity

Successful management packages in France share a common trait: coherence.

They align:

• the level of investment,
• the degree of control,
• the exposure to risk,
• and the nature of the gain.

Management holdings, calibrated ratchets and hybrid equity mechanisms can work — but only if they respect the underlying legal logic.

Creativity is not forbidden. But it must remain legible to courts and tax authorities.

6. The Foreign Investor’s Trap

The most common mistake made by foreign investors is assuming that incentives are a secondary issue. In France, they are not.

A management package is not an appendix to the SPA. It is part of the company’s legal identity.

Ignoring French specificities does not lead to optimisation — it leads to requalification.

The Axipiter View

France does not reject incentives. It rejects confusion.

Where other systems rely on flexibility and ex post interpretation, French law rewards structure, balance and anticipation.

The most robust management packages are not designed to push the limits — they are designed to fit the system.

Understanding that system is not a constraint. It is a competitive advantage.