AFIC calls for staff stakes in PE-backed firms

Greg Gille
16 February 2012

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French private equity trade body AFIC has drafted a proposal to simplify and extend the incentivisation mechanism for employees of PE-backed businesses.

The proposal would allow PE owners to share part of the proceeds generated upon their exit from a business with the entire staff. This incentive would extend to all employees provided they meet seniority requirements; it would not be assimilated to income, would be capped at a certain amount, and would be taxed prior to its distribution.

The choice to put the scheme in place would be left at the discretion of the shareholder - a plan would have to be agreed at least a year before the exit and linked to specific performance objectives.

Although it is already possible for shareholders to incentivise staff, AFIC noted that the variety of existing schemes - and their fiscal idiosyncrasies - made it an overly complex endeavour. The association is adamant that its proposal could be quickly translated into law, easily implemented, straightforward with regards to tax, and wouldn't impact public finances. AFIC is about to submit this proposal to France's social partners and political forces, as well as the various public administrations concerned, to gather feedback and initiate potential changes to the country's legal framework.

Like many of its European counterparts, the French private equity industry is often seen as suffering from an image deficit in the public opinion - despite its maturity and documented contribution to the national economy. AFIC is therefore keen to highlight the industry's focus on responsible investment: "Private equity professionals are convinced that incentivisation strengthens cohesion within a business, gives employees an active interest in its strategy and performance, and fosters mutual understanding," says AFIC chairman Hervé Schricke.

Such "hearts and minds" initiatives could prove crucial as private equity is once again back in the sights of politicians looking to mend France's strained public finances. Between the recently introduced fiscal measures and the ones that could follow the upcoming presidential election, many in the industry feel that private equity is fighting strong headwinds.