Adjustment and claw back of bonuses: new rules since 1 January 2014

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1 January 2014 Adjustment and claw back of bonuses: new rules since 1 January 2014 Introduction With immediate effect as from 1 January 2014, long-awaited legislation on the adjustment and claw back of bonuses of Dutch public companies ( NVs ) and financial undertakings entered into force. The key amendments are set out in more detail below. Powers to adjust and claw back and duty to withhold In short, three new rules have been introduced: > the power to adjust bonuses granted but not yet paid to managing directors of NVs and to managing directors and other day-to-day policymakers of financial undertakings as defined in the Dutch Financial Supervision Act if such payments would not be in accordance with the principle of reasonableness and fairness; > the power to (fully or partially) claw back paid bonuses from managing directors of NVs and from managing directors and other day-to-day policymakers of financial undertakings as defined in the Dutch Financial Supervision Act if the payments were made based on incorrect information on whether set targets were achieved or whether agreed specific events have occurred; and > the duty to withhold from remuneration to be paid to managing directors of listed companies any increase in the value of (depositary receipts for) shares and rights to subscribe for or acquire shares ( option rights ) that are held and acquired by them by way of remuneration: - following the announcement of a public offer; Contents Introduction... 1 Powers to adjust and claw back and duty to withhold. 1 Who exercises the new powers and duty?... 2 Power to adjust... 2 Power to claw back... 2 Duty to withhold... 2 Non-compliance... 2 What bonuses are affected?... 2 What value increases are affected and how are these to be calculated?... 2 Reporting obligations and accountability... 4 Remuneration policy... 4 Annual accounts... 4 Formal requirements towards the shareholders meeting... 4 Immediate effect; no transitional law... 4 Evaluation... 5 Further information following a proposal to the shareholders meeting to approve a significant change in the identity or character of the company or its business ( Section 2:107a Dutch Civil Code Resolution ); or Adjustment and claw back of bonuses 1

2 - following the announcement of a merger or demerger proposal, but before the moment the merger or demerger enters into force. Who exercises the new powers and duty? Power to adjust This power is held by the corporate body (generally the supervisory board) that is authorised to determine the remuneration. In respect of day-to-day policymakers this power is held by the person who is authorised to determine the remuneration. Power to claw back This power is held by the company, represented by its management board or managing directors. Because of the personal interests of managing directors, it has in addition been explicitly provided that the company can in this respect also be represented by the supervisory board, by the non-executive directors of a one-tier board or by a special representative designated for that purpose by the shareholders meeting. Duty to withhold This duty is owed by the (management board of the) company. Non-compliance Consequences of non-compliance with these new rules by financial undertakings include intervention and penalties imposed by the Dutch Central Bank and other regulators. In addition and more generally, non-compliance may trigger directors (personal) liability. What bonuses are affected? Bonuses affected are defined as the non-fixed part of the remuneration, i.e. the part that is fully or partially conditional on achieving certain targets or on the occurrence of specific events. Bonuses therefore include not only typical variable remuneration such as performance-related bonuses but also guaranteed bonuses and severance payments agreed between the company and the relevant managing director or day-to-day policymaker. What value increases are affected and how are these to be calculated? The duty to withhold affects (depositary receipts for) shares and option rights that are held by managing directors of listed companies and acquired by them by way of remuneration. Shares, depositary receipts for shares and option rights that were bought or inherited are not subject to this duty. For calculation purposes, the value of the relevant (depositary receipts for) shares and option rights is determined on three reference dates (after close of business of the relevant stock exchange), as set out below. Adjustment and claw back of bonuses 2

3 > In the case of a public offer, the reference dates are: - four weeks before the day of announcement of the public offer pursuant to the relevant provisions of the Public Takeover Bids (Financial Supervision Act) Decree; - four weeks after the public offer ends; and > In the case of a statutory merger or statutory demerger, the reference dates are: - four weeks before the day of announcement of the merger or demerger proposal pursuant to the relevant provisions of Book 2 Dutch Civil Code; - four weeks after adoption of the resolution to enter into the merger or demerger or the day before the day on which the merger or demerger enters into force if that day is earlier; and > In the case of a Section 2:107a Dutch Civil Code Resolution, the reference dates are: - four weeks before the day of submission to the shareholders meeting of a proposal to approve such Section 2:107a Dutch Civil Code Resolution (the day of submission being the date of convening the relevant meeting); - four weeks after the day the shareholders meeting approves such Section 2:107a Dutch Civil Code Resolution; and If the value on the third reference date is higher than the value on the first reference date, the company must withhold the difference from the remuneration, provided, however, that the amount to be withheld does not exceed the difference between the value on the first reference date and the value on the second reference date. If the amount to be withheld exceeds the amount of the remuneration to which the managing director is entitled, the company will have a claim on the managing director in the amount of the difference. Adjustment and claw back of bonuses 3

4 Reporting obligations and accountability Remuneration policy The obligation to have a remuneration policy in place for the management board, as already applicable to all NVs, now also applies to banks organised as a Dutch private limited liability company ( BV ) or as a Dutch cooperative and insurance companies organised as a Dutch mutual insurance association. Annual accounts Under the new rules, reporting obligations have been introduced for so-called open NVs all NVs other than those of which the articles of association: (i) refer only to registered shares; (ii) contain provisions on share transfer restrictions; and (iii) do not allow for the company to cooperate to the issuance of depositary receipts for shares in bearer form, banks organised as a BV or as a Dutch cooperative and insurance companies organised as a Dutch mutual insurance association. They must now specify in the explanatory notes to their annual accounts the amounts for which bonuses have been adjusted or clawed back as well as the amounts withheld in view of value increases as set out above. Formal requirements towards the shareholders meeting In addition to the already existing reporting obligation on the company s (implementation of the) remuneration policy, open NVs must now also include this as a separate item in the convocation and the agenda for the shareholders meeting for the adoption of the annual accounts and discuss this topic at the relevant meeting before adoption of the annual accounts. Immediate effect; no transitional law The new rules have immediate effect; transitional law has not been provided for. This means that: > the new power to claw back bonuses applies in respect of bonuses paid on or after 1 January 2014 and does not affect bonuses paid before that date; > the duty to withhold: - also affects (depositary receipts for) shares and option rights acquired by way of remuneration before 1 January 2014; - applies in respect of a public offer that is announced on or after 1 January 2014; - applies in respect of a statutory merger or statutory demerger announced on or after 1 January 2014; - applies in respect of a proposal to approve a Section 2:107a Dutch Civil Code Resolution submitted to the shareholders meeting on or after 1 January 2014; and Adjustment and claw back of bonuses 4

5 > open NVs must now observe the formal requirements towards the shareholders meeting as set out above, which impacts the adoption of the 2013 annual accounts. Evaluation The duty to withhold has been heavily criticised, among other things because it could be argued that it is in violation of the right to property under the European Convention for the Protection of Human Rights and Fundamental Freedoms. Because of this criticism, the Dutch legislator will evaluate the effect of the relevant provision before 1 July 2016 to determine whether the rule serves its purpose of ensuring that managing directors of listed companies do not let their personal interests prevail in view of an announced public offer, statutory merger or demerger or Section 2:107a Dutch Civil Code Resolution. Based on the results of this evaluation, the Dutch legislator will decide if there is a need to continue or amend the provision. If the legislator does not take any action to that effect, the rule will automatically cease to apply on 1 January Contacts For further information please contact: Bart Jan Kuck Partner (+31) bartjan.kuck@linklaters.com Martijn van Broeckhuijsen Counsel (+31) martijn.van_broeckhuijsen@linklaters.com Further information If you wish to discuss any aspects of this issue, please speak to one of the contacts listed on the right or your usual contact at Linklaters. This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2014 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the nonmembers who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on Please refer to for important information on our regulatory position. We currently hold your contact details, which we use to send you newsletters such as this and for other marketing and business communications. We use your contact details for our own internal purposes only. This information is available to our offices worldwide and to those of our associated firms. If any of your details are incorrect or have recently changed, or if you no longer wish to receive this newsletter or other marketing communications, please let us know by ing us at marketing.database@linklaters.com. World Trade Centre Amsterdam Zuidplein XV Amsterdam Telephone (+31) Facsimile (+31) Linklaters.com Adjustment and claw back of bonuses 5