Last Friday the final version of the Act on the Remuneration Policy of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen (the ''Wbfo'')) was published. Due to a second written round of questions from the Upper House of the Dutch Parliament, the entry into force of the Wbfo - envisaged for 1 January 2015 - was delayed. Last Saturday the Wbfo entered into force. In this newsletter, we will discuss the content of the Wbfo and some practical tips.
Some practical tips
With a view to the Wbfo, we recommend you to assess the following:
- To what extent does your undertaking and its group companies under the new remuneration rules?
- Does your undertaking have a remuneration policy and does it comply with the new remuneration rules (for example, the prescribed criteria for calculating the variable remuneration and the claw back)?
- Which remuneration components qualify as 'fixed remuneration' and which as 'variable remuneration'?
- Are the 20%-cap rules applicable to your undertaking?
- Which individuals are subject to the 20%-cap and which individuals may be subject to a higher cap?
- Finally, although the main focus is on the cap, please do not forget the other elements from the Wbfo -- see below.
Description of the Wbfo
The Wbfo introduces - among other things - a 20% cap on variable remuneration. The cap has triggered the second written round of questions from the Upper House of the Dutch Parliament, as a result of which the envisaged entry into force of the Wbfo for 1 January 2015 was not met. The Wbfo amends the Dutch Financial Supervision Act (Wet op het financieel toezicht (the ''Wft'')). It contains stricter rules than the European Capital Requirements Directive IV (''CRD IV").
Scope of the Wbfo
- The provisions in the Wbfo are applicable to all financial undertakings that are currently regulated by the Wft and which have their statutory seat in The Netherlands.
- The majority of the remuneration rules (including the bonus cap) is applicable to all subsidiaries of those financial undertakings, regardless of whether they are located both inside or outside The Netherlands.
- If the financial undertaking is part of a group of companies, and the parent company of the group has its seat in The Netherlands, the majority of the remuneration rules (including the bonus cap) applies to all group companies. This is not the case for groups whose 'main activities' do not include the offering of financial products of the provision of financial services.
- The Wbfo introduces a maximum variable remuneration component for persons of 20% of the fixed remuneration that person received in that year.
- The cap is not only applicable to identified staff (as under the previous legislation), but includes all persons performing activities under the responsibility of the financial undertaking (or one of its group companies).
- In certain situations a bonus cap higher than 20% is allowed. These exemptions are, amongst others, relevant to groups of affiliates located abroad. The most important exemptions are:
- Persons who are not solely remunerated based on a collective labour agreement (collectieve arbeidsovereenkomst, ("cao")) may receive a higher variable remuneration (with a maximum of 100%) as long as the average bonus cap within the financial undertaking with regard to the total group of persons who do not solely fall under a cao does not exceed 20%.
- A cap of 100% is applicable to persons whose main activities take place in another country than The Netherlands.
- A cap of 200% is applicable to persons whose main activities take place in a third country (i.e. a country that is not a member state of the European Union), if the shareholders of the financial undertaking have consented thereto.
- The bonus cap is also applicable to branch offices in The Netherlands of financial undertakings with their seat in another state. However, EU-banks and EU-investment firms (as defined under the Capital Requirements Regulation) do not fall under the scope of this bonus cap. In that event, remuneration rules (and caps) of their home country are applicable.
- Exceptions from the bonus cap are available for:
- managers of investment institutions (i.e. alternative investment funds);
- managers of UCITS; and
- investment firms trading solely and exclusively for own account with own funds and capital, that do not have external clients and that are a local undertaking.
- The Wbfo obliges financial undertakings to have a written remuneration policy. Such policy should among other things set out the criteria on which a variable remuneration is based. A requirement in this connection is that the variable remuneration exists for at least 50% of non-financial criteria.
- The Wbfo requires a financial undertaking to lower (malus) or to reclaim (claw back) a variable remuneration in particular circumstances. The situations in which a malus/claw back is obliged are rather open ended. This is the case if the relevant individual (i) has not met suitable norms in respect of expertise and correct behavior, or (ii) has been responsible for conduct that has resulted in a significant deterioration of the financial position of the undertaking.
- The Wbfo contains a ban on guaranteed variable remuneration. An exception in this regard is - in short - a sign-on bonus. The undertaking should in such event have a prudent level own funds.
- The Wbfo also contains conditions for the payment of a severance payment. In addition it includes a maximization of the severance payment for day-to-day policymakers of 100% of the annual, fixed component of the individual's remuneration.
Date of entry into force and transitional regime
The Wbfo entered into force on 7 February 2015. As of that moment, the remuneration policy of a financial undertaking must comply with the Wbfo.
A variable remuneration which does not meet the 20% cap rules may only be granted to individuals that have performed activities prior to 1 January 2015, to only the extent this results from an agreement prior to 1 January 2015. This transitional regime will end on 1 January 2016. Granting a variable remuneration which does not meet the 20% cap rules is not allowed after 1 January 2016.
The maximum severance payments does not apply to severance payments that have already been agreed before 1 January 2015. This transitional regime will end on 1 July 2015 and does not apply to management board members of banks and insurance companies