On 17 April 2025, the Dutch Minister of Finance published a letter addressed to the Dutch Parliament, together with a recent evaluation of the Remuneration Policy (Financial Institutions) Act (Wet beloningsbeleid financiële ondernemingen, the Remuneration Act). The Remuneration Act, incorporated in the Act on the Financial Supervision (Wet op het financieel toezicht, the AFS), sets out a framework of remuneration rules that financial institutions are required to adhere to.
One of the main provisions of the Remuneration Act is a 20% bonus cap (with a few exceptions), which is notably stricter than those in most other European countries which have generally opted for a bonus cap of 100%:
- It applies to nearly all financial institutions established or with a branch office in the Netherlands, and not just to banks and (large) investment firms, but for instance also to advisors and intermediaries in insurances.
- It covers all staff, not only directors or those who have a material impact on the institution’s risk profile.
New evaluation
The Remuneration Act was last evaluated in 2018. That evaluation found no support for the hypothesis that a 20% bonus cap better protects customer interests than a 100% bonus cap. Moreover, it did not provide conclusive evidence on the long-term effects of the Remuneration Act. The Ministry of Finance has therefore commissioned a new evaluation to examine the Remuneration Act’s impact on: (i) remuneration developments in the Dutch financial sector, and (ii) labour mobility, the competitiveness of financial enterprises, and the Netherlands’ overall business climate. A report containing the results of this new evaluation was finalised in October 2024.
The evaluation report shows that the Remuneration Act has had the following effects:
- Increased fixed pay but reduced total compensation: The decline in variable remuneration in the financial sector is partially offset by higher fixed salaries, aimed at maintaining competitiveness in the labour market. Interviewees noted that the available deviations offer some flexibility, but not enough. Data shows that total remuneration at the upper end in the financial sector lags behind that of (i) non-financial companies in the Netherlands and (ii) financial institutions abroad.
- Challenges in attracting and retaining talent: While there is no quantitative evidence of increased outflow or reduced inflow of employees since the bonus cap was introduced, interviewees were nearly unanimous in stating that the Remuneration Act makes it harder to attract and retain staff, especially senior professionals and those with specialised or scarce expertise.
- Reduced attractiveness of the Netherlands: Higher fixed salaries structurally increase the costs for companies. The Remuneration Act also appears to have influenced firms’ location and relocation decisions post-Brexit. Many market participants chose not to relocate to the Netherlands, citing the bonus cap as a key factor. According to stakeholders, the Remuneration Act, in combination with other regulatory measures, contributes to Netherlands’ declining appeal as a business location.
No change in bonus cap for directors
The Minister of Finance reaffirms that the bonus cap was introduced in the aftermath of the 2008 global financial crisis to prevent perverse incentives that that could threaten financial stability or undermine customer interests. The Dutch Parliament urged that the bonus rules remain unchanged. Notably, the Minister does not address the 2018 evaluation, which found no evidence that a 20% cap better protects customer interests than a 100% cap.
The Minister confirms that the bonus cap will not be adjusted for directors in the financial sector, such as senior bankers. Interestingly, the Minister refers only to directors, despite the cap applying to all staff, potentially suggesting that changes for non-directors may still be under consideration.
Innovative sector
The recent evaluation shows that higher fixed salaries have reduced financial institutions’ flexibility in downturns, posing challenges for innovative firms like FinTechs. The Minister acknowledges the need to support FinTechs but offers no specific measures. He notes that share-based pay, preferred by start-ups, is hindered by the Remuneration Act.
Importance of specialists
The Minister notes that emerging challenges like cyber resilience make access to specialised talent, such as IT professionals, crucial for the financial sector. However, financial institutions must compete with companies not bound by the Remuneration Act. To safeguard innovation and transaction security, the Minister intends to explore solutions for retaining specialist staff.
While an exception already exists under Article 1:121(2) of the AFS – allowing bonuses up to 100% in exceptional cases, such as for key IT personnel – it is seen as too limited. The evaluation reveals that market participants find the current exemptions insufficient. It remains to be seen whether any new exception will be more flexible than the existing one.