Last Friday the proposal for the Act on the Remuneration Policy of Financial Undertakings was submitted. Compared to the consultation version that was previously published, only a limited number of amendments have been made. The legislative proposal provides for the following:
- A cap on the variable pay of 20% of the fixed pay;
- The cap does not only apply to identified staff, but for all persons that perform activities for a financial undertaking;
- The cap applies to regulated financial undertakings with a seat in The Netherlands, to their subsidiaries and, if the holding company has its seat in the Netherlands, other group companies;
- The cap also applies to branches of financial undertakings with their seat in another state, with the exception of branches of EU-banks or EU-investment firms;
- Only a limited number of exceptions applies, amongst others to AIFMs;
- A ban on guaranteed variable remuneration;
- A maximum on the severance pay of a day-to-day policymaker to 100% of the fixed remuneration on an annual basis;
- An obligation for financial undertakings to lower or reclaim a variable remuneration in specific cases;
- The intended date of entry into force of 1 January 2015.
The Legislative Proposal for the Remuneration of Financial Undertakings
Last Friday, on 13 June 2014, the proposal for the Act on the Remuneration Policy of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, the "Legislative Proposal") was submitted to the Second Chamber of the Dutch Parliament. One of the aspects covered by this act, is the introduction of a 20% cap on variable remuneration. The Legislative Proposal will lead to an amendment to the Dutch Financial Supervision Act (Wet op het financieel toezicht, "DFSA").
On 26 November 2013, a consultation version of the Legislative Proposal was already published (the"Consultation document"). Below, we will outline the most important changes in the Legislative Proposal compared to the Consultation document, after which we will discuss the contents of the Legislative Proposal.
Amendments with respect to the Consultation Document
- The Consultation Document provided that rules could be set by Ministerial Decree with respect to the conversion of variable remuneration that would no longer be allowed to other types of remuneration. The Legislative Proposal leaves the possible compensation for the loss of bonuses to the discretion of the financial undertaking and its employees.
- The Consultation Document provided a prohibition to pay out a severance payment in case of premature termination of the labour agreement at the initiative of the employee. The Legislative Proposal provides an exemption for the situation where the premature termination is the result of a consequence of serious misconduct or negligence to act by the financial undertaking.
- The mandatory (negative) adjustment of variable remuneration in case of deterioration of the financial results of the financial undertaking, as provided for in the Consultation Document, was removed from the Legislative Proposal.
- The Legislative Proposal provides (as did the Consultation Document) that employees who are not solely remunerated based on a collective labour agreement may receive a higher variable remuneration as long as the average bonus cap within the financial undertaking with regard to comparable persons does not exceed 20%. The Legislative Proposal adds to this that the variable remuneration component for persons who fall under this exemption may not be higher than 100% of the fixed remuneration.
- The explanatory notes to the Legislative Proposal provide that the exception on the cap for AIFMs also applies to MiFID-services which are provided by the AIFM on the basis of its AIFMD licence.
Scope of the Legislative Proposal
- The provisions in the Legislative Proposal are applicable to all financial undertakings that are currently regulated by the DFSA 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, located both in and outside The Netherlands.
- If the financial undertaking is part of a group, and the parent company of the group has its seat in The Netherlands, the majority of the remuneration rules (including the bonus cap) also apply to all group companies. Those groups whose 'main activities' do not include activities within the financial sector are exempted.
- 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 situation, remuneration rules (and caps) of their home country are applicable.
- The Legislative Proposal introduces a maximum variable remuneration component for persons of up to 20% of the fixed remuneration that person received in that year.
- The cap is not only applicable to identified staff (as under the current 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), 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 comparable persons 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.
- Exceptions from the bonus cap are available for
- managers of investment institutions (i.e. alternative investment funds);
- managers of UCITS;
- 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 Legislative Proposal obliges financial undertakings to have a written remuneration policy in place. This requirement comes with several disclosure requirements.
- The Legislative Proposal requires a financial undertaking to lower or to reclaim a variable remuneration in particular circumstances.
- There will be a ban on guaranteed variable remuneration.
- The Legislative Proposal contains a maximization of the severance payment for day-to-day policymakers of 100% of the annual, fixed component of the individual's remuneration.
- The powers to adjust the bonus amount or reclaim a bonus as mentioned in the Dutch legislative proposal on Clawback (Wetsvoorstel Clawback) will apply to the financial undertakings. This applies (in contrast to the Dutch legislative proposal on Clawback) not only to management board members, but to every person employed under the responsibility of that financial undertaking.
Date of entry into force
- The intended date of entry into force of the Legislative Proposal is 1 January 2015.
- For employees that still have bonus rights that were awarded to them prior to 1 January 2015, the bonus cap will apply as per 1 January 2016. This transitional regime will end on 1 January 2016.