The Clawback of Bonuses Act has been approved by the upper house of the Dutch Parliament and will take effect on 1 January 2014. The purpose of the Act is to enable NVs and financial undertakings to adjust or claw back excessive bonuses. The supervisory board will play an important role in this process. In short, the Act will:

  • make it possible to adjust a bonus that has been awarded to a director to an appropriate amount if, under the given circumstances, payment of the bonus would be unacceptable;
  • make it possible to claw back a bonus paid to a director if it has been awarded on the basis of incorrect information; and
  • in merger and takeover situations, require listed companies to withhold any increase in the value of shares and options forming part of the directors' remuneration.

This newsletter explains the new law and discusses recent proposals to further tighten the clawback rules for the financial sector.


The original bill dates from 2010 and is one of the measures adopted in response to the financial crisis. Most of those measures apply only to the financial sector, such as (i) the capping of directors' bonuses at – for the time being – 100% of their annual salary on the basis of the Banking Code and (ii) the statutory ban on the granting of bonuses by banks receiving state aid. In contrast, the Act applies not only to financial undertakings but to all NVs. The passage of the bill was delayed by the complex and legally controversial rule, added by the lower house, intended to keep directors of listed companies from benefiting financially from a merger or takeover.


In short, the Act relates to bonuses awarded to:

  • directors of all NVs (including unlisted and non-financial NVs)
  • day-to-day policy makers of financial undertakings, such as banks, insurers, investment institutions and investment firms.

Definition of bonus

The term bonus is defined broadly to mean "non-fixed" remuneration that is conditional in whole or in part on the achievement of certain targets or the occurrence of certain circumstances. Besides variable remuneration, such as performance-related pay, the term includes one-off payments such as a guaranteed bonus. Severance pay agreed between a director and company also constitutes a bonus. Only if remuneration is fixed in amount and structural in nature (such as the "thirteenth month" salary payment) is it excluded from the definition of a bonus.

What does the law cover?

  1. Adjustment of bonus awarded but not yet paid

The body authorised to establish the remuneration policy (usually the supervisory board) may adjust the amount of a bonus that has been awarded but not yet paid if, from the standpoint of reasonableness and fairness, the payment of that amount would be unacceptable. According to the Minister of Justice, a bonus may be adjusted even if this would be contrary to an agreement previously made between the director and the company. The test is therefore a strict one: think, for example, of where a company has suffered serious losses or the share price on which the payment of a bonus depends has risen excessively.

  1. Clawback 

A company may claw back a bonus if it proves to have been awarded on the basis of incorrect information. An example is where the profit figures are later reduced. It is not necessary for fraud to be involved. Because directors will presumably be disinclined to initiate a clawback claim against another director or a former director, the Act provides that the supervisory board or a special representative appointed by the general meeting of shareholders may represent the company for this purpose. A clawback claim may be initiated for a period of five years after it has become known that the bonus was based on incorrect information.

  1. Withholding of increase in value of shares

In order to eliminate personal gain as the driving force behind decisions in merger and takeover situations, an extra obligation has been introduced for (EU/EEA) listed companies (financial and non-financial): they are required to withhold any increase in the value of shares (including depositary receipts) or options awarded to a director as remuneration if the value increase results from a takeover, merger or division. The same applies to a value increase resulting from an important management decision that fundamentally alters the company's identity. Shares (including depositary receipts) and options that the director has purchased himself or has inherited are not subject to the withholding obligation. The withholding occurs when the director sells his shares or ceases to be a director.

This provision – which was not part of the original bill – has been criticised on the grounds that it allegedly violates a property right protected under international law. Moreover, its formulation is not entirely consistent and raises certain questions. It remains to be seen whether the provision will enjoy a long life. It will be evaluated in 2016 and will expire on 1 July 2017 unless it is renewed.

  1. Accountability 

To inform shareholders and enable them to provide feedback, the Act provides that the explanatory notes to the annual accounts of open NVs (whether or not financial) must report on the manner in which the clawback rules have been applied. This obligation also applies to banks in the form of a cooperative or BV, and insurance companies in the form of a mutual insurance association. In addition, the remuneration policy must be included as a separate agenda item in the convening notice for a general meeting of shareholders and must be dealt with before the meeting can proceed to consider and adopt the annual accounts.

What are the consequences of non-compliance?

If shareholders of an NV or financial undertaking believe that the rules are not being properly applied, they can deny the directors a discharge from liability. The general meeting can also appoint a special representative to claw back a bonus that was based on incorrect information. It may also be possible for shareholders to submit a dispute about the application of the rules to the Enterprise Chamber of the Amsterdam Court of Appeal in what are called "inquiry proceedings". In the case of serious culpability, directors and/or supervisory board members can be held personally liable (by the trustee in bankruptcy or a new management board) towards the company for the improper fulfilment of their duties.

For financial undertakings, there are other consequences as well: the AFM and DNB supervise compliance with the obligation to implement a sound remuneration policy. If a financial undertaking does not properly apply the clawback rules, the regulator can intervene.

Immediate effect

The Act will take effect on 1 January 2014, without a transitional period. The obligation to withhold value increases will also apply to shares that were already part of a director's remuneration package before 1 January 2014. The right to initiate a clawback claim will not, however, apply to bonuses paid before that date.

Practical consequences

During the parliamentary debates it was pointed out that the Act does not introduce any new powers because in the current situation a bonus can be adjusted on account of unforeseen circumstances and can be claimed back as an "undue payment" if the legal basis for the payment ceases to exist. However, the Act provides a clearer framework than existed previously and gives the supervisory board more certainty if it decides to act. This also means that the supervisory board must acquaint itself with this new duty. It is advisable to establish explicit criteria on which the board can rely when applying the rules.

Stricter clawback rules for the financial sector

The clawback rules will in the future be made stricter for financial undertakings. At the end of November a draft Bill on the Remuneration Policy of Financial Undertakings was submitted for consultation (in Dutch only). The clawback rules in that draft bill are not limited to bonuses paid to directors/policy makers but cover bonuses paid to all employees. In addition, the supervisory board's discretion when applying the rules is reduced. While the Act merely grants the power to adjust or claw back bonuses, the consultation version of the draft bill makes this obligatory if:

  1. the recipient has not met the standards for competence or correct behaviour; or
  2. the position of the undertaking has substantially worsened under his responsibility; or
  3. the results of the undertaking have worsened or are negative. In this situation only the adjustment of bonuses is obligatory and not the clawback.

In addition, financial undertakings will be required to lay down criteria for the application of the clawback rules in their remuneration policy.

It is envisaged that the new rules will take effect on 1 January 2015. The draft bill also caps the bonuses for all employees at 20% and sets a cap on severance pay. For more detailed information, see our newsletter.

Plans for the private sector

The Minister of Social Affairs and Employment announced last summer his intention to investigate how a better balance can be achieved between the remuneration of a company's top executives and that of its other employees. The measures being contemplated are to strengthen the role of the works council and to increase transparency in the annual report. The Minister plans to submit a policy statement to the lower house of Parliament in the near future, explaining the various possibilities.

Plans for the semi-public sector

The remuneration paid to the top management of semi-public institutions has been strictly regulated since 1 January 2013. Under the Act on Remuneration Standards for Top Managers in the Public and Semi-Public Sectors their remuneration is not allowed to exceed 130% of a minister's salary. A separate bill will be introduced to reduce that maximum to 100% and extend it to cover all employees and not only top executives.