The structure of the remuneration policies of banks is perceived as one factor among many that have contributed to the financial crisis, as these structures incentivized excessive risk-taking and short-termism that in turn threatened the global financial stability. In order to prevent such excessive risk-taking and short-termism, the Dutch government already formulated a 20% bonus cap in its coalition agreement. On 26 November 2013, the government published, in the form of a consultation document, a long awaited draft legislative proposal of the Act on the Remuneration Policy of Financial Undertaking (‘the Proposal’), including inter alia this bonus cap.
A bonus cap provision is already introduced in the Capital Requirement Directive (‘CRD IV’). The provision entails that the variable remuneration cannot exceed 100% of the annual fixed remuneration for any individual identified staff member of banks and certain investment firms. This ‘bonus cap’ can be increased to 200% percent of the fixed remuneration with the approval of the shareholders.
However, Member States are allowed, pursuant to art. 94 (g) (i) and (ii) CRD IV respectively, to introduce more restrictive bonus cap provisions. The Dutch government is using this possibility as the Proposal provides for a 20% cap on variable remuneration.
The proposed Dutch bonus cap applies to all financial undertakings incorporated or established under Dutch law. The provision is also applicable to branch offices of financial undertakings that have their corporate seat outside the European Economic Area (EEA). If a financial undertaking has its corporate seat in a EEA Member State, the remuneration rules and bonus caps of their home country are applicable. Moreover, the cap applies to all natural persons, both individuals working for the financial undertaking on the basis of an employment agreement as well as individuals working on the basis of other types of contractual agreements, employed under the responsibility of the financial undertaking. However, there are some exceptions to this rule.
An exception to the bonus cap provision may be applied to certain individuals whose remuneration is not or not fully governed by an applicable collective labour agreement provided that the average variable remuneration awarded to this whole category of persons does not exceed 20% of the fixed remuneration. There is also the possibility to deviate in relation to employees who perform services primarily outside the Netherlands. If a person performs services primarily in states that are part of the EEA, the financial undertaking may award a bonus of 100% of the fixed remuneration. If a person performs services primarily outside of the EEA, the undertaking can award a bonus of 200% of the fixed remuneration provided approval from the shareholders, owners or members has been received. When a financial undertaking has awarded a bonus between 100% to 200% of the fixed remuneration, this undertaking must inform the competent authority and provide the reasons for the proposed higher bonus.
Another exception applies to groups of companies of which the holding company has its corporate seat in the Netherlands. Provided that more than 75% of the personnel perform services primarily outside the European Union for more than three years, what is to be measured retroactively during a period of five years, the bonus cap provision of CRD IV applies to the holding company.
In conclusion, the bonus cap will not apply to (i) managers of investment institutions, i.e. alternative investment firms (‘AIFs’); (ii) managers of Undertakings For The Collective Investment Of Transferable Securities (‘UCITS’); and investment firms that act solely and exclusively for their own account with their own funds and capital and that do not have external clients.
The Proposal also provides for a transitional arrangement. As the government plans to submit the Proposals to the Dutch parliament in the spring of 2014, the new remuneration rules are envisaged to take effect on 1 January 2015. But until 1 January 2016 the bonus cap provision will not apply to variable remunerations resulting from obligations entered into by the financial undertaking before 1 January 2015.