What does the Wnbfo entail?
The Wnbfo introduces, amongst others, the following important changes:
- the introduction of a five-year retention period for shares and similar financial instruments which are part of the fixed remuneration;
- the obligation to account for and report on the ratio between remuneration and the social function of the financial undertaking and the manner in which this is established; and
- a limitation of the possibility to deviate from the bonus cap with respect to non-CLA personnel and the introduction of a reporting obligation for the use of this deviation.
These amendments are relevant for financial undertakings with a registered office in the Netherlands, their subsidiaries, and, under certain conditions, group companies of Dutch financial undertakings, as well as Dutch branch offices of financial undertakings with a registered office outside the Netherlands.
The amendments introduced by the Wnbfo are explained in more detail below. Please also refer to our previous contributions on this topic in July 2019 and July 2020 (only available in Dutch).
Accounting for and reporting on ratio between remuneration and the social function of the financial undertaking
The Wnbfo introduces a statutory obligation for financial undertakings to set out in their remuneration policy (i) the ratio between the remuneration of executive board members, supervisory board members and employees and the social function and position of the financial undertaking, and (ii) the manner in which this ratio is established. Accountability for this must be provided afterwards on the basis of the publication and information obligations that already apply. This means, among other things, that a financial undertaking that is obliged to draw up a management report on the basis of the Wft must account for these elements of the remuneration policy in the management report.
According to the explanatory notes of the Wnbfo, the Dutch supervisory authority will ensure – on a risk-oriented basis – that the ratio between the remuneration and the social function of the financial undertaking, as well as the manner in which this ratio is established, are part of the remuneration policy and the management report. The supervision therefore does not include a material test.
Limitation of the possibility to deviate from the bonus cap and annual reporting obligation
The Wnbfo provides for a limitation of the possibility to deviate from the bonus cap with respect to non-CLA personnel. Non-CLA personnel refers to personnel whose remuneration does not, or not exclusively, follow from a collective labour agreement. The Wnbfo stipulates that the use of this deviation is only possible in exceptional cases and is in any event prohibited for persons who (i) perform internal control functions or (ii) are directly engaged in providing financial services to consumers.
This means that with regard to the group of employees who perform an internal control function, namely risk management, compliance, internal audit (and for insurers: the actuarial function), it is no longer possible to deviate from the bonus cap on the basis of the deviation for non-CLA personnel. The same applies to personnel that provides financial services to consumers. This not only includes advisors, but also other personnel with substantive contact with customers regarding the financial service. Please note that such customers must be consumers.
The Wnbfo also introduces a reporting obligation for financial undertakings that make use of the deviation from the bonus cap for non-CLA personnel. This report must be made to the supervisory authority, and will, in our view, in any case have to consist of an indication for which employees a deviation from the bonus cap has been made, details of the remuneration, and an explanation of which exceptional circumstances have given reason to deviate from the bonus cap. According to the legislator, exceptional circumstances may exist "if deviation from the bonus cap is necessary in view of the continuity of the business operations or services of the financial undertaking".
Retention period for fixed remuneration
The Wnbfo introduces a statutory obligation for executive board members and employees of financial undertakings to hold onto shares that are part of the fixed remuneration during a retention period of at least five years, and thus not to sell or exercise these shares during such retention period. This also applies to similar financial instruments that are part of the fixed remuneration and which value depends on the value of the company, such as options.
The Wnbfo provides for transitional law for (i) the retention period for financial instruments in fixed remuneration within financial undertakings and (ii) the limitation of the possibility to deviate from the bonus cap.
More specifically, the transitional law consists of a transitional period of one year for existing personnel with respect to (i) the limitation of the possibility to deviate from the bonus cap, and (ii) the retention period for financial instruments in fixed remuneration within financial undertakings. In addition, shares and similar financial instruments in fixed remuneration that have already been acquired will be respected. The idea behind the transitional period is to give parties the opportunity to consult with each other and, where necessary, to amend employment conditions or other existing agreements.
Assuming that the Wnbfo will enter into force on 1 July 2022, the foregoing means that the new remuneration rules will be fully effective as of 1 July 2023.
The Wnbfo also regulates the continuation of the existing policy with regard to proprietary traders. They will continue to be exempt from the bonus cap. This is in line with new European regulations for investment firms. In addition, the Wnbfo regulates a number of technical changes.
The date on which the Wnbfo will enter into force is not yet announced but will be determined shortly by royal decree. Should you have any questions about the Wnbfo, for example about what the amendments mean for your company, the specialists of the Employment & Benefits Team and the Financial Regulatory Team will be happy to advise you.