The submission of a bill to the Dutch parliament on the remuneration rules for financial undertakings has moved one step closer to fixing a 20% cap on bonuses. Financial undertakings may not award variable pay above 20% of the annual fixed remuneration. They will have to adapt their remuneration policies to reflect this bonus cap as well as make other changes. In a previous article we discussed the public consultation for this bill. In this article we highlight the most important changes to the bill as compared to the consultation document.
In its advice regarding the outcome of the bill’s consultation, the Dutch Council of State criticised the bonus cap, among other things. This criticism, however, was set aside and the bonus cap has been retained. Some changes were made though, the most important of which are:
The definition of financial undertaking in the chapter of the Financial Markets Supervision Act (FMSA) regarding remuneration policy will include the premium pension institution (PPI). This is consistent with existing regulation regarding pursuing a restrained remuneration policy, which is applicable to the PPI as well. Also, the bill stipulates that the provisions regarding the restrained remuneration policy and the disclosure requirements apply to financial undertakings to which the existing provisions on controlled business operations currently apply.
- Publication of the decision to impose a fine
If the supervising authority imposes an administrative fine due to violation of certain provisions in the new FMSA chapter on remuneration policy by a financial undertaking, the supervising authority is obliged to publish this decision. This obligation applies to, for example, violations of the provisions on the restrained remuneration policy or the disclosure requirements.
- Limitation on severance payments
The new rule that limits severance payments to 100% of the annual fixed remuneration will not apply to managing directors as announced in the consultation, but instead will apply to day-to-day policymakers.
- Entry into force and transitional provisions
The bill stated that the provisions regarding the maximum severance payments would not apply until the Work and Security Act came into force. However, this Act recently entered into force on 24 June 2014. Another transitional provision regards the limitation of the severance payments to 100% of the annual fixed remuneration. Until 1 July 2015, this limit will not apply to severance payments agreed to prior to 1 January 2015. However, this transitional provision does not apply to the day-to-day policymakers of banks and insurers. The current rules in the Banking Code and the Insurers Governance Principles apply to these day-to-day policymakers.
The date of entry into force for the new rules concerning remuneration by financial undertakings remains unchanged: they should be applied as of 1 January 2015.
The transitional provision for the bonus cap is unchanged as well: until 31 December 2015, the bonus cap does not apply to variable remuneration stemming from obligations pre-dating 1 January 2015. Financial undertakings need to make sure their remuneration policies reflect these new rules, including those set out above.