A draft Bill is proposing the addition of a new chapter into the Financial Supervision Act (“FSA”). The new chapter consolidates existing and new rules regarding remuneration in the financial services sector and, if adopted, will impose stricter rules regarding variable pay including a new limit of up to 20%. Furthermore, the new chapter will limit severance payments. It is proposed that this new chapter will come into effect on 1 January 2015.
Scope of the Bill
The proposed legislation will apply to all financial companies, including banks, insurance companies and so on, which have their registered offices in the Netherlands (an “NLFC”). Foreign subsidiaries of the NLFC will also fall within the scope of this legislation. If the NLFC is the head of a group of companies, all the companies within the group will be affected, unless the main activities of the group are non-financial. Importantly, the 20% rule is also applicable to branch offices of foreign financial institutions based in the Netherlands.
A number of the provisions of the proposed legislation will be applicable to every person who performs work for the financial company including employees, independent contractors, temporary employees, seconded employees and contractors who work through a management company or agency.
However, the draft legislation does distinguish between employees and contractors and those with corporate responsibility, such as board members (this latter group of “Day-to-Day Policy Makers” being required to comply with additional specific (financial) regulations).
20% rule for variable pay
The draft legislation proposes that variable pay must be capped at 20% of fixed annual pay. Fixed pay is usually agreed upon by contract and is guaranteed and unconditional. Examples of fixed pay are base salary and holiday allowance. The 20% rule applies to all persons working in the Dutch financial sector. The 20% cap can be raised by collective labour agreement to up to 100%, however the average of the total variable pay within the company must not be more than 20% of the total average fixed pay of the entire workforce.
Maximum severance payment
In addition, the draft legislation proposes that a severance payment should not exceed 100% of fixed annual pay when a Day-to-Day Policy Maker is dismissed.
There are three situations in which it is proposed that there should be no severance payment when a contract is terminated. These are where the person working for the financial company terminates their own contract; the dismissal is a result of serious culpable behaviour, such as fraud or theft;or the termination is of a Day-to-Day Policy Maker and the enterprise is failing, perhaps for example where warnings have been given by a supervisory authority or the business has turned to the government for financial support.