Netherlands: Easing restrictions on variable pay in the financial sector

Employer action code: Monitor

The House of Representatives has passed a bill that would significantly ease restrictions on variable pay for most employees in the financial sector. The bill aims to increase Dutch financial institutions’ ability to attract and retain key talent, such as financial technology staff, relative to their competitors in the rest of the EU (where such restrictions are generally less onerous). The bill will next be considered by the Senate.

Key details

The proposed amendments to the Financial Supervision Act (Wet op het financieel toezicht – FSA) would remove several restrictions on variable pay in the financial sector for “non-identified staff” (defined below). The Regulations on Managed Remuneration (De Regeling beheerst beloningsbeleid), which apply only to “identified staff” in the financial sector, would be unchanged.

• Identified staff: Employees with significant influence on the risk profiles of financial institutions, including executives, staff managing control functions/essential business units and highly compensated staff (as defined by the EU Capital Requirements Directive and transposed into the FSA, which applies to all financial services companies)
• Non-identified staff: All other employees

Primarily, the amendments would eliminate ­— for non-identified staff — the current 20% cap on annual variable pay relative to fixed remuneration. The cap would still apply for identified staff. Other restrictions that would be removed — again, only for non-identified staff — include:

• The requirement that performance criteria for granting variable pay be based at least 50% on nonfinancial measures
• The need for prior regulatory approval to grant retention bonuses
• The obligation for companies to disclose total annual variable pay
• The minimum five-year retention period for financial instruments, such as stocks, awarded as part of fixed remuneration

In addition, for non-identified staff the amendments would eliminate the so-called CLA-exception (cao-uitzondering), whereby the individual variable pay of employees not bound by a collective labor agreement (CLA) may be up to 100% of their fixed remuneration, if the average variable pay percentage for all personnel not bound by a CLA does not exceed 20%. The CLA-exception would continue to apply for identified staff.

Employer implications

Employers covered by the FSA should closely follow the progress of the proposed amendments. The measures passed by a comfortable majority in the House, so there does appear to be appetite for change. The restrictions on variable pay were implemented after the 2008 financial crisis but have long been seen as a significant competitive disadvantage for the financial services industry in the Netherlands. If approved, the amendments would significantly ease the provision and management of variable pay for non-identified staff but would not offer any relief for identified staff.