In early 2015, a great deal of fuss was made about the entry into effect of the Dutch Remuneration Policy (Financial Enterprises) Act (Wbfo) and its incorporation into the Dutch Financial Supervision Act (Wft). This new law includes a 20% cap on bonuses, a maximum amount of severance pay, and a controlled remuneration policy. The law’s underlying rationale was that bonuses can lead to perverse incentives (which were partly to blame for the economic crisis of 2008) from which society must be protected. The government did not consider the European maximum of 100% restrictive enough. At the time, then-Dutch Minister of Finance Dijsselbloem said:
“At various points in recent years, the financial sector has leaned on the taxpayer and consumers for support. In my view, the new European remuneration restriction rules do not go far enough. Where possible, I want to make the rules in the Netherlands more stringent. Excessive bonuses aimed at the short-term and severance payments are things of the past.”
The act even contains an anti-abuse provision that prohibits financial enterprises from utilising constructions or methods to evade the remunerations rules, including the bonus cap.
Exceptions to the Dutch Remuneration Policy (Financial Enterprises) Act (Wbfo)
There are a limited number of exceptions to the 20% cap that allow higher bonuses to be paid:
- Financial enterprises whose registered offices are situated abroad do not fall within the scope of the Wbfo, unless a) the enterprise in question is a subsidiary of a financial enterprise that has its registered office in the Netherlands, or b) they are part of a group having its registered office in the Netherlands and the group’s core business relates to the financial sector.
- A #stratified# cap has been chosen; a cap of 20% for employees in the Netherlands, 100% for employees who work primarily in the European Economic Area (EEA), and up to 200% for those who work primarily outside the EEA.
- No bonus cap applies to managers of investment institutions or managers of undertakings for the collective investment in securities.
- Employees whose remuneration is not, or is not exclusively, governed by a collective bargaining agreement are subject to a cap of 100% of the fixed remuneration, provided that the average variable remuneration of the entire group of these employees in the Netherlands does not exceed the 20% cap.
- A 100% bonus may be granted to employees of a parent company based in the Netherlands if at least 75% of the group employees have spent three years (of a five-year period) working primarily outside the Netherlands.
- Dutch branches of banks and investment companies whose registered offices are located abroad do not fall within the scope of the Dutch rules. Given European reciprocity, they fall within the scope of the capital requirements directive (CRD IV) and are thus generally subject to a 100% cap, unless the country of establishment imposes more stringent rules. This exception does not apply to other branches – such as those of insurance companies.
- ##In the event of retention bonuses when effecting permanent organisational changes##. The exception requires the regulator’s consent, which will not be speedily given.
Remuneration and the works council
Under the Dutch Works Councils Act (WOR), the works council is entitled to receive information from the management board regarding remuneration ratios, including with regard to the management and supervisory boards (Section 31d-e WOR). The information, however, must be clustered by group and must not be traceable to individuals.
With effect from 1 January 2019, moreover, management boards will be obliged to discuss the remuneration paid to managing directors with the works counsel in a consultative meeting (Section 23 WOR).
Advice about your organisation’s remuneration policy?
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