Background
Under the current rules, a strict limitation on variable remuneration – 20% – applies to all persons working under a financial undertaking’s responsibility (Article 1:121 FSA). In practice, the wide scope this entails has led to difficulties in recruiting and retaining specialised staff, especially in IT and technology positions. The legislative amendment aligns the Dutch remuneration regime more closely with the European approach, with bonus limitations targeting only risk-relevant jobs. It should be noted, however, that the stricter Dutch framework continues to apply to these risk-relevant jobs, meaning that the Netherlands still differs from other European jurisdictions in this regard.
Key changes
Bonus cap limited to those regarded as IDS
The 20% bonus cap will no longer apply to all employees, but only to IDS (see below for an explanation of who may and may not be classified as IDS). In principle, there will thus be no bonus cap for non-IDS working in the Netherlands. Of course, the variable remuneration of non-IDS must still comply with the standards of the sound remuneration policy. IDS primarily working outside the Netherlands but within the EU will be subject to a 100% cap, while IDS primarily working outside the EU will be subject to a 200% cap (subject to shareholder approval). Like their counterparts in the Netherlands, non-IDS outside the Netherlands will not be subject to a bonus cap.
Amendment of other remuneration rules
Various other remuneration obligations are also being restricted to IDS. These include the requirement to base at least 50% of variable remuneration on non-financial performance criteria (Article 1:118(3) FSA), the restrictions on retention bonuses exceeding 20% (Article 1:122 FSA), the obligation to disclose the total variable remuneration in the management report (Article 1:120(2)(b) FSA) and the five-year lock-up restriction on financial instruments awarded as part of fixed remuneration (Article 1:130 FSA).
Amendment to collective labour agreement (CLA) exception
The assessment for the CLA exception will apply only to non-CLA employees who also qualify as IDS, rather than to all non-CLA employees. As a result, the average variable remuneration will henceforth be calculated on the basis of a smaller group of IDS. In practice, this means that the scope for exceptions to the IDS bonus cap will be even more limited.
Determining IDS status
Financial undertakings must determine for themselves which individuals qualify as IDS. The assessment must be consistent with the relevant sectoral framework and with the extent to which a position fundamentally affects the undertaking’s risk profile:
- For banks, the assessment should align with existing banking rules for IDS, including the criteria in the Capital Requirements Directive (Directive 2013/36/EU) (CRD) and the delegated legislation based thereon.
- For other financial undertakings with their own sectoral definition, such as insurers and investment institutions, that sectoral definition retains precedence.
- Financial undertakings for which the IDS concept is new – such as payment institutions, advisers, intermediaries and managing general agents – must determine for themselves who qualifies as IDS in a manner that appropriately reflects their risk profile.
Supervision
DNB and the AFM are expected to supervise substantiation of the IDS classification and compliance with the remuneration rules, applying a risk-based approach. The Parliamentary Papers from the Dutch Senate confirm that existing disclosure and reporting obligations remain relevant for monitoring purposes, and that the regulators may issue further policy guidance in response to questions regarding interpretation. The obligation to implement a sound remuneration policy remains in full force. Financial undertakings would therefore be well advised to carefully document their classification process, governance and decision-making.
Entry into force
At present, it is unclear exactly when the new rules will enter into force.
Recommended actions
Financial undertakings would be wise to consider the following steps at this stage:
- Carry out an IDS classification: identify which individuals qualify as IDS based on their position and affect on the risk profile.
- Review the remuneration policy: assess which of the current remuneration policy’s provisions need to be amended to reflect the new distinction between IDS and non-IDS.
- Update contractual and governance documentation: amend employment agreements, remuneration schemes and internal policies where necessary; assess the extent to which employee representative bodies should be involved in this process.
Our specialists in financial regulatory law and employment law are ideally placed to assist you with these matters. Please do not hesitate to contact Berry van Wijk, Jet Stolk or Lisanne Haarman to discuss the options.