Dutch remuneration regime for financial undertakings tightened

Bastiaan Siemers

29 juni, 2022

Effective from 1 January 2023, the Dutch remuneration regime for financial undertakings will change. This partial tightening of the regime relates primarily to the ‘non-collective labour agreement exemption’, the retention period for shares part of fixed remuneration and accountability for remuneration policies in a broader context.

Non-collective labour agreement exemption

The Dutch remuneration regime dates back to February 2015 and includes an exemption to the Dutch 20% bonus cap for employees in the Netherlands if remuneration is not, or not exclusively, based on a collective labour agreement. If so, a bonus higher than 20% of the fixed remuneration is allowed provided that the average bonus awarded to all employees in the Netherlands is no more than 20% and the bonus awarded to the individual employee is no more than 100% of the fixed remuneration.

While it was explained that this exemption was for exceptional cases only, the statutory provision allowed for use provided that the two numerical conditions were met. As a result hereof, various financial undertakings used this exemption to award higher bonuses and it was felt that this exemption was used too often and not as orignally intended. It has therefore been suggested to further clarify (and restrict) this exemption.

Consequently, under the new regime this exemption can only be used in exceptional cases (this is basically a codification of what was voiced earlier) and may not longer used for employees in internal control functions or employees directly involved in the provision of financial services to clients. ‘Exceptional cases’ have been explained as highly specialized empoyees necessary for the business of the financial undertaking. ‘Internal control functions’ are excluded further to the EBA Guidelines on sound remuneration policies under the CRD and CRR and include risk, audit, compliance and, for insurers, actuarial functions. The ‘provision of financial services to clients’ includes various forms of client contract including employees who provide advice or information to clients.

A transitional regime of 12 months will apply to (the remuneration of) employees that presently benefit from the exemption. If necessary, employers and employees therefore have until 1 January 2024 to amend the remuneration conditions. It has been explained that unwillingness of the employee to cooperate with this new mandatory regime, may ultimately be sufficient reason for the employer to terminate employment.

Under the new regime it will also be required to informs the regulator on the application of this exemption together with the exceptional circumstances justifying use, on an annual basis. This will allow the regulator to better supervise the use of this exemption. Informing may be part of the annual inquiry on remuneration so no separate notification by the financial undertaking involved may be necessary.

5-year retention period for equity instruments part of fixed remuneration

With a view to alignment of interests, a retention period of five years is introduced for shares and similar equity instruments that are awarded as part of the fixed remuneration (i.e., without any performance criteria applicable). As a result, sale or exercise of these instruments within this period is prohibited. This requirement will apply to listed and non-listed instruments and (like most of the Dutch remuneration regime) to all employees rather than to identified staff only. This retention period shall be distinguished from the retention period for shares and similar equity instruments that are awarded as part of the variable remuneration.

A transitional regime of 12 months will apply to the retention requirement for employees under existing arrangements. Employers and employees therefore have until 1 January 2024 to amend these arrangements and make them compliant with the new regime by introducing the 5-year retention period to the extent this was not yet included. Shares acquired by employees prior to 1 January 2024 are outside the scope of the new retention requirement.

Accountability for remuneration policies

Financial undertakings will be required to consider how their remuneration policies relate to the function of their business in the sector and their position in society, as an extra element when (re)considering remuneration and remuneration policies. In plain English this means that financial undertakings should on beforehand take into account and better explain why they believe that certain (variable) remuneration is acceptable, and they should afterwards better explain their choices made in respect of remuneration granted, for example in their remuneration reports.

Other changes

The changes also include more technical aspects such as extended regulator approval terms for retention bonuses and repair of the exemption to the bonus cap for market makers that no longer applied due to a condition that could no longer be fulfilled by market makers.

Action required?

Financial undertakings must take the necessary action. This includes revisiting, and if necessary redrafting, existing remuneration policies before 1 January 2023 to (better) cater for the social element of remuneration and accountability for choices made in this respect.

Financial undertakings will also have to revisit, and if necessary amend, remuneration arrangements if the non-collective labour agreement exemption is used or if shares and similar equity instruments are awarded as part of the fixed remuneration. This shall be done before 1 January 2024 as financial undertakings may benefit from the transitional regime.

From 1 January 2023 onwards remuneration awarded must also be better explained and the regulator must be informed about the use of the non collective labour agreement exemption, whether as a separate notification or as part of the annual inquiry by the relator on remuneration.

Over de auteur

Bastiaan Siemers

Bastiaan is gespecialiseerd in financieel recht in brede zin. Hij heeft uitgebreide kennis van nagenoeg alle aspecten van het financiële toezicht en de bijbehorende Nederlandse en Europese regelgeving.