Comparative Guide | Employee Incentives in France

1. What kinds of incentive plan are most commonly offered and to whom?

On an individual basis, the most commonly offered incentive plans are bonuses in cash and equity bonuses (free-shares and stock-options). Those plans are usually offered to high level employees (whose work directly influences the company’s results) and certain corporate officers (see question 5). 

Note that on a collective basis, in companies having at least 50 employees it is mandatory to set up a profit-sharing agreement (“participation”). Also, it is very common to have company savings plans (“PEE”) or optional profit-sharing plans (“intéressement”). These schemes are not “tailor made”, as all employees, and sometimes company officers, are beneficiaries. We will therefore not mention them in this questionnaire.

2. What kinds of share option plan can be offered?

The most common form is stock options, which allow employees (typically managers) of a company, whether listed or not, to subscribe to or purchase shares of their own company, or under specific conditions outlined by the Commercial Code, shares of other companies within the same group, for a fixed period at a pre-determined price that cannot be modified during the option's term. The beneficiaries, conditions for granting and exercising options must be defined in the plan. The scheme, upon meeting the conditions set forth by the French Commercial Code, benefits from a preferential social and tax regime.

There exist other kinds of option plans, such as:

-    Share purchase warrants (“BSA”), which the beneficiary purchases and that give the right to subscribe to shares at a pre-determined price for a fixed period;

-    Warrants to subscribe for shares of a business creator (“BSPCE”), which are granted free of charge to their beneficiaries, entitling them to subscribe to shares at a price fixed at the time of the grant during a specified period.

3.    What kinds of share acquisition/share purchase plan can be offered?

In addition to the plans mentioned in question 2 (BSA...), the most common schemes include free shares that may be set up by any company (whether listed or not). These are plans that allow for the free allocation of shares of the company to an employee (generally a manager) (or, under specific conditions provided for by the Commercial Code, shares of other companies belonging to the same group). The beneficiaries and conditions for granting shares must be defined in the plan. The scheme, when it meets the conditions provided for by the French Commercial Code, benefits from preferential social and tax regime.

4.    What other forms of long-term incentives (including cash plans) can be offered?

The other most common forms of incentives include incentive bonuses in cash or phantom shares (similar to cash bonuses but the amount of which depends on the value of the company's shares). The conditions for receiving these incentives, the methods for calculating them, and the timeframe for acquiring them must be clearly defined in the plan.

Additionally, investment funds may offer their employees the possibility to acquire carried interests.

5.    Are there any limits on who can participate in an incentive plan and the extent to which they can participate?

6.    Can awards be made subject to performance criteria, vesting schedules and forfeiture? 

7.    Can awards be made subject to post-vesting and/or post-employment holding periods. If so, how prevalent are these provisions both generally and by reference to specific sectors?

8.    How prevalent malus and clawback provisions are and both generally and by reference to specific sectors?

9.    What are the tax and social security consequences for participants in an incentive plan?

-    Cash bonuses or bonuses resulting from phantom shares plans are subject to national social security contributions and income tax (through withholding tax) under the same conditions as salary, at the date of payment;

-    If the requirements of the French Commercial Code are not respected, bonuses in shares (stock options and free shares) are subject to social security contributions under the same conditions as salary based on the value of the shares (stock market price) on the date the capital gain is realized by the beneficiary. They are also subject to income tax (through withholding tax) in the wages and salaries category for the year the bonus in shares is granted. In this case, the amount subject to income tax is equal to the value of the shares at the date of their acquisition, but it may also take into account the capital gain realized by the employee upon the sale of the shares, if it is considered that this capital gain was acquired as a result of the duties performed by the beneficiary in the company. 

-    Bonuses in shares (stock options and free shares) are subject to preferential social and tax regime, provided that the requirements of the French Commercial Code are complied with (see question 5) and specific disclosure requirements are fulfilled (see question 11). The social and tax regime depends on the date of authorization to grant the shares. The rules set out below apply since January 1, 2018, and are contingent upon compliance with the conditions set forth in the French Commercial Code.

(i)    On grant:

(ii)    On vesting:

(iii)    On exercise:

When stock options are exercised, the gain from the exercise of the option (which corresponds to the difference between the value of the share when the option is exercised and the purchase price of the share that had been set in advance) is subject to income tax in the same way as wages. This gain is also subject to CSG and CRDS, similar to wages, as well as a 10% employee contribution. The tax and these social contributions are due when the shares are transferred. 

In the case of stock options, taxation and social security contributions may also be due in the year of exercise of the option if a discount of more than 5% has been offered by the company on the value of the share.

(iv)    On the acquisition, holding and/or disposal of any underlying shares or securities; and

The capital gain realized on the sale of the shares (since the exercise of options for stock options or the allocation of shares for bonus shares) is subject to a flat tax of 30% (12.8% for income tax and 17.2% for social contributions).

(v)    In connection with any loans offered to participants (either by the company operating the incentive plan, the employer of the participant (if different) or a third party) as part of the incentive plan.

Note that social security contributions are due as of the date of payment, even if it is an advance payment. In addition, the income tax must therefore be applied, and the withholding tax must be applied as soon as the gain is available for its beneficiary.

10.    What are the tax and social security consequences for companies operating an incentive plan?

(i)    On grant:

The granting of bonuses in shares does not give rise to the payment of national social security contributions at the time of granting. 

However, a specific contribution is due by the company for stock-options: 30 % of the value of the options granted calculated based on:

This contribution is due the month following the date of the decision to grant the options. However, if the granting of stock options is subject to conditions, and these conditions are not met and consequently no stock options are granted, it may be possible to request the reimbursement of this contribution, based on a decision of the French Constitutional Council regarding free shares.

(ii)    On vesting:

A specific contribution is due by the company for free shares: 20 % of the value of the shares on the date of the acquisition. This contribution is due the month following the acquisition date. 

(iii)    On exercise:

No national social security contributions are due.

(iv)    On the acquisition, holding and/or disposal of any underlying shares or securities:

(v)    In connection with any loans offered to participants (either by the company operating the incentive plan, the employer of the participant (if different) or a third party) as part of the incentive plan.

11.    What are the reporting/notification/filing requirements applicable to an incentive plan? 

(i)    on grant, the company must inform the “URSSAF” of the beneficiaries’ identity;

(ii)    on vesting, the company must issue an individual statement for each beneficiary having acquired shares and send such statement to the employee no later than March 1 of the year following vesting. Information relating to the awards must also be reported by the employer on its annual wages declaration (DSN) to the “URSSAF”. 

12.    Do participants in incentive plans have a right to compensation for loss of their awards when their employment terminates?  Does the reason for the termination matter?

13.    Do any data protection requirements apply to the operation of an incentive plan?

14.    Are there any corporate governance guidelines that apply to the operation of incentive plans?

French bodies such as the Tax administration, the Financial Markets Authority (“AMF”), the French Institute of Administrators (“IFA”) or the national association of joint-stock companies (“ANSA”) issued guidelines on these specific matters, which are regularly updated.

In addition, for companies whose securities are admitted to trading on a regulated market, the AFEP-MEDEF Code provides for some recommendations that apply to incentive plans offered to company officers.

15.    Are there any prospectus or securities law requirements that apply to the operation of incentive plans? 

(i)    the date on which the company's corporate bodies become aware of information that, if it were made public, could have a significant impact on the price of the company's shares, 

(ii)    and the date that is ten market days after the date on which such information is made public.

In the same way, free shares may not be transferred:

1° Within 30 calendar days prior to the announcement of an interim financial report or year-end report that the issuer is required to make public;

2° By corporate officers and employees with knowledge of privileged information, within the period between:

(i)    the date on which the company's corporate bodies become aware of information which, if it were made public, could have a significant impact on the price of the company's shares, 

(ii)    and the date that is 10 market days after the date on which such information is made public.

16.    Do any specialist regulatory regimes apply to incentive plans?

There is no specialist regulatory regime on incentive plans. 

Nevertheless, as mentioned above (see question 14), for companies whose securities are admitted to trading on a regulated market, the AFEP-MEDEF Code provides for some recommendations that apply to incentive plans offered to company officers.

Also, some specific organizations that have authority in that matter (such as the Financial Markets Authority (“AMF”) or the national association of joint-stock companies (“ANSA”) have issued guidelines on these specific matters, which are regularly updated

17.    Are there any exchange control restrictions that affect the operation of incentive plans?

18.    What is the formal process for granting awards under an incentive plan?

19.    Can an overseas corporation operate an incentive plan?

Yes, a company whose registered office is located abroad may set up an incentive plan. 

20.    Can an overseas employee participate in an incentive plan?

Yes, an overseas employee can participate in an incentive plan. Also note, that by application of the “equal treatment, equal pay” principle (see question 5), the employer might be forced in certain circumstances to grant the incentive plan to an overseas employee.

21.    How are share options or awards held by an internationally mobile employee taxed?

The taxation of share options or awards held by internationally mobile employee depends on his or her tax domicile and tax treaty concluded between the countries concerned (if any). 

In principle, share options or awards are taxed in the State in which the activity remunerated by the granting of the options or shares was carried out.  

22.    How are cash-based incentives held by an internationally mobile employee taxed?

As for share options or awards, cash-based incentives held by internationally mobile employee depend on his or her tax domicile and the tax treaty concluded between the countries concerned (if any). 

If the employee's sole tax domicile is France, cash-based incentives are taxed in accordance with French law (see question 9).

23.    What trends in incentive plan design have you observed over the last 12 months?

Incentive plans that do not comply with the conditions of the French Commercial Code regarding stock options or free shares must consider the evolution of case law from the French Supreme Court ("Cour de cassation"). Indeed, the French Supreme Court now seems to maintain that gains derived from the allocation of shares ought to be subjected to social security contributions at the moment the capital gain is realized.

Furthermore, the criteria for performance for incentive plans increasingly include Corporate Social Responsibility (“CSR”) standards.

24.    What are the current developments and proposals for reform that will affect the operation of incentive plans over the next 12 months?

On November 29, 2023, a new law was enacted with the objective of more closely involving employees in the performance of companies, particularly in "PME" (i.e. small and medium-sized enterprises). This law aims to promote the dissemination and growth of value-sharing schemes, introduce a new requirement to negotiate on exceptional profits, streamline the implementation of value-sharing schemes, and enhance employee share ownership. Most of these measures took effect on December 1, 2023. 

In terms of employee share ownership, the legislation has raised the maximum legal limits for the allocation of free shares.
 
In the forthcoming months, it will be observed whether these initiatives are effective in broadening share ownership, especially in terms of free share plans or value-based compensation schemes.

The Legal 500’s Country Comparative Guides are produced in association with the World’s leading lawyers and give the in-house community a practical overview of the laws and regulations in key jurisdictions, for specific practice areas.

Each country chapter is written by a renowned firm in an easy to use Q&A format. The Hot Topic articles provide analysis of current trends and developments within particular practice areas, giving the readership a deeper understanding of pressing issues within the sectors.

This country-specific Q&A for France authored by Partners Camille Ventejou and Romain Guichard provides an overview of employee incentives laws and regulations applicable in France.