Remuneration policy and structure

Remuneration policy and structure, from employee to management

Employees are the linchpin of many organizations. A well-thought-out employment conditions policy attracts good people and retains them within the organization. The compensation policy is an important factor for many employees. A compensation policy goes beyond just salary. Examples include bonus schemes, vacation days and money, and profit sharing.

Remuneration policy in the (semi-)public sector is regulated by the Act on the Standardization of Remuneration for Top Officials (WNT). For enterprises falling within the scope of the Corporate Governance Code or the Financial Supervision Act, rules also apply to the remuneration structure of directors. For financial enterprises, restrictions regarding the remuneration structure apply via the Act on Remuneration Policy for Financial Enterprises. In some cases, this also entails the obligation to publish the remuneration policy and submit it to the shareholders' meeting for approval.

We have the knowledge and expertise to assume diverse roles: from advisory services to dispute resolution. We have an experienced team of lawyers and legal experts in the field of remuneration structures. Contact us to discuss the possibilities.

Who determines the remuneration of directors?

The statutory rules governing directors' remuneration are set out in Book 2 of the Dutch Civil Code. In the case of a public limited company, the general meeting is authorized to establish the remuneration policy pursuant to Article 2:135 of the Civil Code; in listed companies, the actual remuneration of an individual director is subsequently determined by the Supervisory Board, often on the proposal of a remuneration committee. In the case of a private limited company, Article 2:245 of the Civil Code stipulates that the general meeting determines the remuneration of directors, unless the articles of association provide otherwise. Consequently, a statutory director is in principle not permitted to determine their own salary: this is deliberately entrusted to another body to prevent conflicts of interest. Whether you are an international group or the baker on the corner with a single holding company, it is wise to correctly record this division of authority in the articles of association and decision-making process.

What must a remuneration policy contain?

A remuneration policy goes beyond an amount on the payslip. Articles 2:383c through 2:383e of the Dutch Civil Code specify which components must be made transparent, such as periodically paid remuneration, remuneration payable in deferred payment, profit sharing and bonus payments, and severance payments. For listed companies, the law furthermore prescribes that the policy is aimed at long-term value creation and that there is an appropriate balance between fixed and variable remuneration, whereby the variable remuneration is linked to predetermined and measurable performance criteria. Our lawyers and in-house counsel translate these abstract standards into a workable and legally sound policy, ranging from a simple bonus scheme to a comprehensive share and option plan.

Remuneration policy at listed companies: SRD II and shareholder approval

Since the implementation of the revised Shareholders' Rights Directive (SRD II) in Articles 2:135a and 2:135b of the Dutch Civil Code, strict requirements apply to listed companies. The remuneration policy must be submitted to the General Meeting for approval at least every four years and upon every material change, and that decision requires a qualified majority of at least three-quarters of the votes cast, unless the articles of association provide for a lower threshold. In addition, the company prepares an annual remuneration report on which shareholders cast an advisory vote. We assist companies with drafting the policy, decision-making at the shareholders' meeting, and accountability in the remuneration report, and also support shareholders who wish to exercise their voting rights in this regard.

Remuneration, bonuses and change of control in mergers and acquisitions

Within Corporate, Mergers and Acquisitions, remuneration plays a special role. Financial incentives for directors quickly arise around an acquisition, merger, or takeover , for example through change-of-control bonuses or option packages that increase in value upon a successful transaction. These incentives can be at odds with the corporate interest that directors must serve pursuant to Articles 2:129 and 2:239 of the Dutch Civil Code, and with the rules regarding conflicts of interest. The Supervisory Board may adjust or reclaim a bonus payment that would be unacceptable according to standards of reasonableness and fairness pursuant to Article 2:135 of the Dutch Civil Code. We advise on structuring remuneration agreements that support a transaction rather than frustrate it, drawing upon our expertise in corporate governance and private equity, management buy-outs, and exits.

The role of the Works Council in the remuneration policy

In companies with a works council, that council plays a role under the Works Councils Act regarding important decisions on terms of employment and remuneration ratios. Furthermore, for the largest companies, the works council can determine a position on the proposed remuneration policy for the management board. A careful and timely employee participation process prevents delays and disputes. Our legal experts guide both the management board and the works council through this process.

Frequently asked questions about remuneration policy and structure

May a director of a private limited company determine their own salary? In principle, no. Pursuant to Article 2:245 of the Dutch Civil Code, the authority rests with the general meeting, unless the articles of association provide otherwise. This prevents conflicts of interest.

Does the remuneration policy also apply to SMEs? The strictest rules (SRD II, remuneration report) apply primarily to listed companies. For SMEs and small business owners, the basic rules regarding authority, articles of association, and reasonable remuneration remain fully relevant, particularly in the context of an acquisition or business transfer.

What happens to bonuses during an acquisition? Bonuses and change-of-control agreements must be in the corporate interest. A disproportionate bonus may be adjusted or reclaimed by the Supervisory Board.

Have a compensation policy drafted or reviewed?

We have an experienced team of lawyers and in-house counsel that takes on diverse roles: from advice and policy drafting to dispute resolution. We work for international corporations as well as small business owners. Contact us to discuss the possibilities, or view our broader expertise in Corporate, Mergers and Acquisitions.