With the entry into force of the fifth capital requirements directive (CRD V) on 29 December 2020, the below changes in remuneration regulations are applicable to the remuneration policy of Dutch banks as per this year. CRD V has been implemented in both Chapter 1.7 of the Act on financial supervision (Wbfo) and the Decree on sound remuneration policies (Rbb). In addition, the EBA remuneration guidelines will be amended accordingly.
The minimum mandatory deferral period for variable remuneration of identified staff (IS) will be extended to 4 years (this used to be 3 years). For significant banks, on management board and senior management level a minimum of 5 years will have to be applied.
An EU-wide proportionality regime has been introduced in respect of the payment modalities (i.e. deferral period, payout in instruments) applicable to IS. This offers more leeway than the current local DNB-regime. The new regime works twofold and provides that payment modalities in respect of variable remuneration of IS will not have to be applied if:
-
- The bank is small with less than 5 billion in assets, taking into account the average of the preceding 4-year period. In that case the proportionality regime is applicable to the variable remuneration of all IS of this bank.
- The yearly variable remuneration of an IS member is EUR 50,000 or less and this bonus amount does not form more than 10% of total remuneration of the IS member. The proportionality regime is applicable to the variable remuneration of any IS member satisfying these criteria (of any bank, be it large or small).
The remuneration policy of a bank should be gender neutral, ensuring equal pay for the same job or jobs of equal value and ensuring equal career opportunities. Banks should be able to demonstrate to DNB that the remuneration policy is gender neutral, e.g. by documenting job descriptions for all their staff members and by determining which positions are considered as equal or of equal value per time rate, taking into account the type of activities, tasks and responsibilities assigned to the position. The European Banking Authority (EBA) shall issue further guidelines on this matter.
The bank’s remuneration policy, and in particular the target-setting, should be consistent with the objectives of the bank’s risk culture, including with regard to environmental, social and governance (ESG) risk factors.
The severance pay policy of the bank should be included in the remuneration policy. Deviations from the bank’s severance pay policy are not allowed, on pain of excess severance pay being reclassified as variable remuneration. In that case, amongst others, the bonus cap would apply to this portion of the severance pay.
When awarding retention bonuses of more than 20% of fixed pay, the bank should substantiate to DNB (i) the concerns that lead to the risk that certain staff may choose to leave the bank, (ii) the reasons why the retention of those staff is crucial for the bank, (iii) the consequence if the staff member concerned leaves the bank and (iv) whether the amount of the awarded retention bonus is necessary and proportionate to retain the targeted staff member.
The scope of the bank’s remuneration policy is expanded and will have to be applied to all institutions within the consolidated group. This can also include non-financial institutions or institutions that are not themselves subject to the bank’s remuneration rules. Certain subsidiaries of banks have been excluded, such as investment funds, as they are themselves subject to specific remuneration rules. However, where the staff of such subsidiaries perform professional activities that have a direct material impact on the risk profile or the business of the institutions within the banking group, a cap of 100%, or 200% with shareholder approval, will nonetheless apply in respect of these staff members.
The identification criteria for identified staff have been (slightly) changed following new regulatory technical standards published by the EBA.
The remuneration policy of a bank should be internally disclosed to all staff and accessible for all staff at all times. Staff should be informed about the characteristics of their variable remuneration, as well as the process and criteria that will be used to assess their variable remuneration. In particular, the appraisal process with regard to the individual’s performance should be properly documented and should be transparent to the staff concerned.
Prior to the award of variable remuneration, the bank’s remuneration policy should be updated accordingly. Please note that in principle any variable remuneration awarded in 2021 (with respect to performance year 2020) will have to comply with these new rules. In individual cases local employment law may oppose against immediate implementation.
The CRD V rules are without prejudice to calls from the regulators to adopt a more restrictive and conservative policy on variable remuneration during the COVID-19 pandemic.
