PARIS -- Renault CEO Carlos Ghosn has a new incentive to promote development and sales of electric vehicles: A significant part of his pay now depends on it.
Ghosn, who has led Renault since 2005, was formally named to another four-year term by shareholders on Friday. However, his mission has been significantly altered. Earlier this year he handed off day-to-day operational duties to Thierry Bollore, and he agreed to a 19 percent reduction in base pay, to 1 million euros in 2018. The 64-year-old Ghosn's mandate now is to prepare the Renault-Nissan-Mitsubishi alliance for a future without him at the helm.
Ghosn's compensation has been a point of contention in France, with the government (which holds 15 percent of Renault) and significant number of shareholders arguing that he is overpaid, because he receives a separate salary from Nissan. After he lost a non-binding vote on pay in 2016 (and with this year's vote binding), Renault's compensation committee held more than a dozen meetings "to better understand this negative outcome."
In addition to cutting Ghosn's base pay, his long-term incentives will be reduced to a total of 80,000 shares from 100,000 (Renault stock has been trading at about 84 euros recently). Until this year, his performance targets have been conventional, equally divided among operating margin, free cash flow and shareholder return.
Those targets represent an automotive industry that was more focused on current performance than future adaptation. Recognizing that, the board has changed the criteria to better align with new strategic plans for Renault and the alliance, which call for doubling synergies from the alliance and ramping up EV vehicle sales.
EV sales targeted
Under the new pay plan, 30 percent of Ghosn's long-term incentives depend on electric-vehicle sales (shareholder return, free cash flow and alliance platform transition, another new category, make up the rest). An increase of 5 percent over internal forecasts will earn him the full 30 percent, but if sales meet targets, he will get only 21 percent.
Renault is not publishing sales goals, but last year the company sold 36,000 all-electric vehicles, including about 32,000 Zoe compact hatchbacks (the remainder were almost all Kangoo small vans). That was an increase of about 10,000 from 2016.
It’s likely that Ghosn's targets are attainable, given that EV sales in Europe are less than 2 percent of the overall market, and most experts expect sales to surge in coming years in response to tighter pollution standards in Europe and Chinese government mandates (Renault will start selling an electric version of the Captur there). "We see a huge demand in the next five years," Ghosn told shareholders.
However, Renault's leadership in Europe is not the given it once was. The redesigned Nissan Leaf has outsold the Zoe in the first four months of this year, and rivals such as the Volkswagen e-Golf and BMW i3 recorded sales gains. Most automakers have pledged that they will have a full electric lineup by the early 2020s.
The EV market has confounded Ghosn’s expectations before. After announcing an investment of 4 billion euros in 2011, he predicted the Renault Nissan alliance would have the capacity to produce 500,000 annually EVs by 2013; the alliance has sold a total of about that many since 2010.
Renault is taking some proactive steps. On Thursday, the company said it would invest more than 1 billion euros in EV production for Europe, including introducing a new alliance EV platform for its factory in Douai, France; doubling Zoe capacity at Flins, France; and tripling electric motor output at Cleon, France.
Ghosn acknowledged that Renault's EV investment has not yet paid off but, he told investors, "In a few years the landscape will look very different than today."