DRAFT ACT ON REMUNERATION POLICY OF FINANCIAL UNDERTAKINGS – INTRODUCTION OF A MAXIMUM BONUS CAP OF 20%
The remuneration policy of financial undertakings has been a point of attention on the financial markets and for (international) politics over the past couple of years. Consequently, the Dutch government announced in its coalition agreement that it would implement measures that avert inducements that lead to excessive risk-taking and short-termism.
As a result, on 26 November 2013, the Dutch government published a consultation version of the legislative proposal regarding the remuneration policy of financial undertakings (Wet Beloningsbeleid Financiële Ondernemingen, the “Draft Bill”). Through the Draft Bill, the Dutch legislator, among others, imposes a maximum bonus cap of 20% on variable remuneration (the “Bonus Cap”). The envisaged date of entry into force of the Draft Bill is 1 January 2015.
SCOPE OF THE BONUS CAP: UNDERTAKINGS AND PERSONS AFFECTED
The Bonus Cap has a wide scope and applies to the following financial undertakings:
- all regulated financial undertakings with their statutory seat in the Netherlands;
- all subsidiaries of regulated financial undertakings with their statutory seat in the Netherlands, regardless of whether these subsidiaries are located in or outside the Netherlands;
- all financial undertakings that form part of a group, if the (regulated) parent company of that group has its statutory seat in the Netherlands (except if the main activities of the group do not consist of activities within the financial sector); and
- Dutch branch offices of financial undertakings that have their statutory seat in another state, unless it concerns a branch office of a bank or an investment firm that falls under the scope of CRD IV (as defined below), in which case the remuneration rules of the home member state apply.
Importantly, the Bonus Cap applies to all individuals employed under the responsibility of the financial undertaking in question, either through an employment contract or otherwise.
Some exceptions to the Bonus Cap apply, on the basis of which it is possible to grant a variable bonus exceeding 20% of fixed remuneration. The most significant exceptions are:
- for individuals whose main activities take place in the Netherlands, and who have agreed on remuneration in deviation of an applicable collective wage agreement, a bonus cap applies of 20% of fixed remuneration on average. As a result, certain employees within a group of employees may receive a bonus exceeding the 20% cap, as long as the total amount of bonuses distributed among that group of employees does not exceed 20% of the total fixed remuneration of that same group of employees;
- individuals whose main activities are performed in an EEA country other than the Netherlands may receive a variable bonus of up to 100% of the fixed remuneration of that individual; and
- individuals whose main activities are performed outside of the EEA may receive a variable bonus of up to 200% of the fixed remuneration of that individual, subject to a decision to that effect by the shareholders or unitholders of the relevant financial undertaking.
- Furthermore, the Bonus Cap does not apply to:
- managers of alternative investment funds;
- managers of UCITS funds; and
- investment firms that solely deal for own account with own capital and without external clients.
European context: CRD IV
Directive 2013/36/EU (“CRD IV”) also includes a bonus cap for a specific group of employees of banks and certain investment firms. This bonus cap is set at 100% of fixed remuneration, that may, provided certain conditions are met, be increased to 200%.
Pursuant to Article 94, subsection 1, under g (i) and (ii) of CRD IV, member states may set a lower maximum percentage of variable remuneration. The Netherlands has made use of this right and set a bonus cap of 20% instead of 100%/200%.
The Draft Bill and the accompanying Bonus Cap furthermore deviates from CRD IV on the following points:
- the Bonus Cap applies to all financial undertakings (as specified in paragraph 2), as opposed to banks and certain investment firms; and
- the Bonus Cap applies to all individuals employed under the responsibility of financial undertakings (as specified in paragraph 2) as opposed to a selected group of employees of banks and certain investment firms.
Besides the Bonus Cap, the Draft Bill contains provisions regarding the following topics:
- severance payments. In accordance with CRD IV, severance payments may not exceed 100% of fixed remuneration. In addition, a prohibition to distribute any severance payments applies under certain circumstances;
- claw-back of variable bonuses. Via the Draft Bill, certain powers to adjust distributed bonuses or to reclaim distributed bonuses are extended in order to apply to all individuals employed under the responsibly of a financial undertaking that falls under the scope of the Draft Bill;
- disclosure requirements. Certain disclosure and transparency requirements will apply in relation to the remuneration policy of financial undertakings that fall under the scope of the Draft Bill;
- ban on guaranteed variable remuneration; and
- retention payments. A financial undertaking is allowed to incidentally deviate from the Bonus Cap in order to retain either high-quality employees or to safeguard the continuity and value of the financial undertaking in question.