Under New Rules, Brand Scandals Could Impact Kering Chief’s Paycheck

PARIS In the wake of Balenciaga’s ad scandal, a portion of Kering chairman and chief executive officer François-Henri Pinault’s pay will be indexed on the French luxury group’s efforts to protect the reputation of its brands.

Speaking at the group’s annual general meeting in Paris on Thursday, Véronique Weill, an independent board director at Kering, said it was one of two new criteria determining the variable salary of the group’s top two executives, Pinault and group managing director Jean-François Palus, in 2023. Another new element is linked to the reduction of the group’s carbon footprint, Weill said.

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In the notice of the meeting, Kering detailed the targets on which the executives’ pay will be hinged, which included implementing “a system of protection of the intangible assets and reputation of the houses.” 

This should include putting in place an internal mechanism to oversee marketing initiatives, as well as promoting a culture that encourages employees to exercise their personal judgment and collectively debate decisions, the document said. The measure is one of several under the heading of “organization and talent management,” which collectively account for 10 percent of variable pay.

Earlier this year, Palus said Kering had appointed a “best-in-class” agency to supervise marketing content at Balenciaga, and was contemplating the creation of a position at the group level in charge of “brand safety.”

Addressing the situation on Thursday, Pinault took responsibility for the error, but emphasized that Kering’s brands are bigger than the inviduals who run them.

“Indeed, the energy and determination that drives them exceeds by far what a single individual, however talented, can contribute to these brands. Our role is to fuel the desirability of our houses, not only for the next semester of the year ahead, but above all for the long term,” he said.

Balenciaga triggered outrage with two ad campaigns in November, the effects of which continue to impact the revenues of Kering’s “other houses” division, which recorded a 9 percent sales decline in the first quarter.

One campaign featured children posing alongside logo beer glasses and teddy bears dressed in bondage gear. Another included a handbag resting on a page from the 2008 Supreme Court ruling “United States v. Williams,” which confirmed the promotion of child pornography as illegal and not protected by freedom of speech.

Earlier this week, Kering chief financial officer Jean-Marc Duplaix forecast Balenciaga would not recover its footing completely until the second half.

“Balenciaga had an excellent performance before, of course, the regrettable incident that marked the end of the year. I’m convinced that its singular creative vision, and the daring balance between heritage and modernity that characterizes its creations, will allow it to regain its momentum,” Pinault told shareholders on Thursday.

In 2022, Pinault’s salary consisted of a fixed payment of 1.2 million euros, and a further 1.8 million euros indexed on performance. He also received a one-off payment of 5.8 million euros. Shareholders approved his pay package by a majority of 77.4 percent, a relatively low figure that suggests some dissatisfaction with the company’s performance.

Kering has been lagging its sector peers, posting a 2 percent rise in revenues in the first quarter, versus a 17 percent increase at LVMH Moët Hennessy Louis Vuitton and a 22 percent jump at Hermès International. As part of its efforts to catch up, Kering is targeting luxury’s highest spenders with exclusive products and stores.

Revenues at the group’s jewelry brands, which include Boucheron, Pomellato and Qeelin, should exceed 1 billion euros “in the not-too-distant future,” Pinault forecast.

Meanwhile, Kering’s star brand Gucci plans to open a store and a Gucci Osteria restaurant in a building located near Place Vendôme in Paris, Palus said. The location will also house the offices of one of Kering’s brands, in addition to apartments destined for internal use, he added.

Though Palus declined to provide further details, the building in question is located opposite Louis Vuitton’s flagship on Place Vendôme. Kering also bought the adjacent restaurant, Le Castiglione, which was a fashion-crowd favorite. Presumably, the new outpost of Gucci Osteria, a format conceived by Michelin-starred chef Massimo Bottura, will take its place.

Growing Balenciaga and other brands such as Saint Laurent and Bottega Veneta is key to Kering’s diversification strategy as it seeks to reduce its reliance on Gucci, which accounted for more than half its revenues and 67 percent of its recurring operating income in 2022.

“The group will be more balanced in its portfolio of brands, but Gucci will also continue to grow, though not necessarily at the same rate as our other houses, which will allow us to achieve a more satisfactory balance in the next five to 10 years,” Pinault said in response to a shareholder’s question.

The group is also growing its presence in Saudi Arabia and India. Pinault said he had just returned from a trip to India, which is poised to overtake China this year as the world’s most populous country.

While India has been a “weak and stable” market for luxury over the last decade, local investors are ploughing money into infrastructure, transport and retail developments, the executive noted.

“This has led Saint Laurent in the last 12 to 18 months to take back direct control of its operations, which were under franchise,” he said. “We are reviewing our development plans for Mumbai, New Delhi, Bangalore or Hyderabad in order to have wider coverage. It’s still modest compared to China, but it’s a volume of business that allows us to operate directly in the country.”

Kering plans to also take back control of distribution in India for Bottega Veneta and Balenciaga in the next 12 to 24 months, Pinault revealed.

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