The Bill on the revision and claw back of bonuses is at an advanced stage in the First Chamber of the Dutch parliament. This article describes the impact on directors and companies.
The Bill on the revision and claw back of bonuses is at an advanced stage in the First Chamber of the Dutch parliament and is currently expected to become law on 1 January 2014. What will be the impact on directors and companies?
Which types of remuneration and which directors are subject to the proposed rules?
The term bonus means the variable portion of the remuneration that is partly or entirely conditional on achieving certain targets or on the occurrence of certain circumstances. This includes guaranteed bonuses, or severance payments agreed between the company and the director.
What new powers or duties are created and who can exercise them?
Whether a value increase has taken place in a takeover situation is determined based on the value on the following reference dates, after the stock exchange’s close of business:
If the value on reference date (3) is higher than on reference date (1), this value increase will be deducted from the director’s pay, but subject to a maximum of the value increase between reference dates (1) and (2).
This provision has received much criticism, and its implementation raises a number of questions. Withholding the value increase allegedly violates the director’s proprietary rights, but the Minister has disputed this reasoning. In addition, the proposed reference dates are unclear and the company’s withholding duty is not subject to any time limit. The business organisation VNO NCW has sent a letter to the Minister asking for clarification.
The Minister has explained that the duty to withhold value increase does not apply to shares/options inherited or purchased by the director. The withholding duty is of a temporary nature and will expire on 1 July 2017. The provisions will be evaluated before 1 July 2016.
Companies will have to account for any remuneration amounts revised, withheld or clawed back. They will need to do this in the explanatory notes to the company’s annual accounts.
Directors will have to make clear remuneration arrangements in consultation with the supervisory board in order to limit any unexpected consequences that the proposed rules may have.
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