Remuneration in the financial sector
The Dutch Financial Supervision Act and the Restrained Remuneration Policy Regulations (Financial Supervision Act) govern a broad range of rules for financial enterprises. These laws include a 20% cap on bonuses, a maximum amount of severance pay, rules on the reclamation of variable remuneration, and a controlled remuneration policy. The law’s underlying rationale is that excessive bonuses can lead to perverse incentives (which were partly to blame for the economic crisis of 2008) from which society must be protected. After all, such risks conflict with an enterprise’s long-term interests and resilience, as well as with the interests of consumers, among others. In 2021, the rules on remuneration in the financial sector were made more stringent by the implementation of the amended European directive on the prudential supervision of investment firms and the amended European capital requirements directive. For example, the obligation to have a gender-neutral remuneration policy has been imposed.
Controlled remuneration policy
The main rule is that a financial enterprise must pursue a written controlled remuneration policy as part of its business operations. The financial enterprise must have procedures and measures in place ensuring that the remuneration policy is properly implemented and maintained. This remuneration policy must be tailored to the size of the enterprise’s organisation, as well as to the nature, scope and complexity of its activities, and it must also be gender-neutral. The remuneration policy must include a controlled severance pay policy.
Finally, the anti-abuse provision prohibits financial enterprises from using constructions or methods that result to the circumvention of the remuneration rules, including the bonus cap.
The variable remuneration which a financial enterprise pays an employee is capped at 20% of that employee’s fixed annual remuneration. Incidentally, that cap is much stricter than that prescribed by European regulations, which set the cap at 100%, or even 200% under certain conditions.
There are a limited number of exceptions to the cap of 20% of the fixed remuneration that allow higher bonuses to be paid:
- Financial enterprises whose registered offices are situated abroad do not fall within the scope of the Financial Supervision Act, 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 of financial enterprises in the Netherlands whose remuneration is not, or is not exclusively, governed by a collective bargaining agreement are subject to a cap of 100% of the fixed annual remuneration, provided that the average of the ratios between the fixed and variable remuneration of the entire group of these employees who work primarily in the Netherlands does not exceed the 20% cap.
- A bonus of 100% of the fixed component of each employee’s total remuneration 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 European directive on the prudential supervision of investment firms and the European capital requirements directive (CRD V) 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.
In 2020, in response to the societal debate on immoderate remuneration in the banking world, the Minister of Finance introduced a bill to impose additional limits on fixed remuneration. Employees of financial enterprises whose fixed remuneration consists partly of shares may not sell those shares for a period of five years. This is intended to counteract perverse incentives – and increase trust – in the financial sector. Financial enterprises such as banks and insurers are therefore obliged to ensure that their remuneration policy takes their positions in society into greater account by involving stakeholders in remuneration proposals before these are adopted and by being accountable for those decisions.
It is unclear whether or when this bill will be scheduled for debate in the Dutch House of Representatives.
Remuneration in the public and quasi-public sectors
The Senior Executives in the Public and Semi-Public Sector (Standards for Remuneration) Act (‘WNT’) imposes a maximum on the remuneration of senior executives in the public and quasi-public sectors. The purpose of the WNT is to counteract excessive remuneration and severance pay at institutions in the public and quasi-public sectors. The maximum remuneration is indexed annually and is approximately equal to the salary received by ministers. Other sector-wide standards apply to healthcare institutions, health insurers, housing associations and organisations operating in developmental cooperation and cultural fields. The WNT also requires public and quasi-public institutions to disclose the remuneration they pay.
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.
In addition, management boards are 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?
Please contact us at +31202351150 or via the contact form for more information or advice.