Variable compensation tools linked to business results

Remuneration is very often at the heart of the employment relationship: it can be a vector of individual motivation, encouraging the performance of the employee and therefore ultimately of the business, therefore operating like a virtuous circle.

For the employer, the advantage of using such remuneration linked to the company's profits - in addition to the traditional form of salary - is to encourage the mobilization and involvement of its employees. They will feel involved in the company's effective growth, while at the same time paid without burdening the company's treasury.

It's also a win-win situation for the employee, who can earn a profit depending on the company's performance.

While these forms of remuneration have been established and favoured in France for decades, they had no legal existence in Monaco until very recently.

A first step in this direction was taken by the Government, with Ministerial Decree no. 2022-619 dated November 16, 2022, amending the internal regulations of the Caisse de Compensation des Services Sociaux, to set guidelines on the uncertain - and therefore particularly unincentive - system that existed until now.

However, some would qualify this consecration as timid, because differing from the French system which organizes contribution exemptions in certain hypotheses.

Putting an end to legal uncertainty, Monegasque provisions establishes a clear principle, which to date has not been subject to any exemptions: profit-sharing, stock options and free or discounted shares must be included in the salary to be declared to the Caisses Sociales - even when the benefit is granted by a foreign entity, provided there is a link with the employment contract concluded with the Monegasque employer.

The amount of benefits obtained by the employee must be declared according to well-defined procedures relating in particular to (i) the value of the benefit to be declared and (ii) the time at which the said benefit must be declared.

Particular attention must be paid when stock options are granted. Several stages in the process have to be completed, and therefore several elements should be taken into consideration in the salary declaration to be made.

Just like all salary components, any late, incomplete or insincere declaration will expose the employer not only to prosecution by the Caisse in order to recover these sums, but also to criminal sanctions.

Although this first endorsement of performance-related remuneration tools is limited to the (welcomed) clarification of the contributions regime, it opens a door that may eventually lead to a more developed legal and regulatory arsenal, providing employers and employees with a greater and incentive framework.