Dutch Bonus Cap Tougher Than EU’s as Bankers Put on Notice
As the European Union moves to cap bankers’ bonuses at twice fixed pay, the Netherlands is considering even tougher measures amid a public backlash against the industry.
After paring bonuses for top banking executives to 100 percent of annual salaries in 2010, the Dutch government plans to limit bonuses to 20 percent of wages across the industry. The nationalization of SNS Reaal NV (SR) last month added to calls to reduce compensation.
At the center of the campaign is Dutch Finance Minister Jeroen Dijsselbloem, who was appointed head of the eurogroup of finance ministers in January. Dijsselbloem, like peers elsewhere on the continent, and his Labor Party are concerned they’re losing the support of voters as taxpayers foot the bill for hundreds of billions of euros in bank bailouts.
“Remuneration in the banking industry is still structurally higher than in other, comparable sectors, which is incomprehensible in light of the situation we are in and the amount of public money spent on keeping this industry going since 2008,” Dijsselbloem told lawmakers in The Hague last month.
European lawmakers and national government officials agreed to cap bonuses starting next January. The current Dutch banking code doesn’t allow exceptions unless they’re explained publicly. The EU plan, due to be voted on in parliament in April, allows banks to exceed the cap should compensation be paid in shares or debt deferred for five years and that could be written down during a crisis.
Jan Hommen, chief executive of Amsterdam-based ING Groep NV (INGA), which got a 10 billion-euro bailout in 2008, earns a fraction of peers abroad. Hommen received a salary of 1.35 million euros ($1.7 million) in 2011 compared with the 6.6 million pounds ($10 million) paid to Douglas Flint, CEO of HSBC Holdings Plc. (HSBA)
Hommen waived a 1.25 million-euro bonus and a 2 percent pay rise in 2011 after a remuneration plan sparked outrage among consumers and politicians.
Dijsselbloem, 46, will propose new bonus curbs to parliament at mid-year, Ben Feiertag, a spokesman for the minister, said by telephone yesterday. Since the nationalization of SNS, a majority of parliament have called for tougher bonus rules, making passage of the measure likely. The government has also promised a draft law on general remuneration at banks, combining existing rules from the EU, Dutch central bank and banking code.
“The Netherlands is way ahead of most other countries in terms of remuneration,” Bert Bruggink, chief financial officer of Rabobank, the biggest Dutch mortgage lender, told reporters in Utrecht, the Netherlands, yesterday. “You’re seeing a tendency that variable pay is going down all over the world, while in the Netherlands we’re slowly getting used to the idea that it may disappear altogether.”
Outrage against bankers has flared since the Dutch government took control of SNS Reaal on Feb. 1. The firm’s nationalization will cost taxpayers 3.7 billion euros as capital is injected into the bank and an earlier aid package is written down. The Netherlands’ budget deficit will widen by 0.6 percentage point in 2013 because of the rescue, Dijsselbloem said Feb. 1.
Taxpayers have already stumped up 30 billion euros to rescue parts of ABN Amro Holding NV and Fortis, and provided 13.8 billion euros for ING Groep NV, SNS Reaal NV and Aegon NV. (AGN) The Netherlands also took on the risk of 21.6 billion euros of ING’s U.S. mortgage assets, guaranteed banks’ debt and reimbursed Dutch depositors of Landsbanki Islands hf’s Icesave unit after it collapsed in 2008.
The country’s finance industry measures about 4.8 times gross domestic product, making it one of the largest in the world on that basis, according to the Dutch central bank.
Following the 2008 financial crisis, banks receiving financial aid from the state were prohibited by law to pay executive bonuses at all. The central bank oversees remuneration policies for top managers.
While Dijsselbloem’s position as chairman of the group of 17 euro finance ministers largely equates to the job of spokesman, his comments may influence European leaders and bankers as they consider measures on compensation.
“It’s an important position because he will have more influence on the agenda, stating priorities, putting issues on the table,” said Nicolas Veron, a senior economist at the Brussels-based Bruegel research group and a visiting fellow at the Peterson Institute for International Economics in Washington. “His role is to broker agreements and steer discussions among all member states, he has to work in the European interest in this capacity.”
Hommen of ING, who is due to step down in October, warned last November that slashing compensation threatened to hurt banks and the Dutch economy because firms wouldn’t be able to attract top talent abroad.
“We cannot go too far in being out of line with what the international market is telling us,” he said. “More than half of what the country generates in income comes from international trade. That requires an international banking system supporting that and you have to have international people.”
Hommen’s basic salary rose from 923,000 euros in 2009. He hasn’t received variable remuneration in cash, stock or debt since he was hired that year. ING said the remuneration of Hommen’s successor, Ralph Hamers, currently chief of its Belgian bank, hasn’t been decided.
Piet Moerland, chairman of Rabobank, said his bank has never had a tradition of high variable remuneration.
“It doesn’t fit in with our culture,” he said in an interview in Utrecht. “It never has and it never should.”
Rabobank’s executives, whose variable compensation is limited to 30 percent of basic salary, received 1.7 million euros in performance-related pay in 2011, unchanged from 2010. The firm has never received financial aid from the government.
Still, exceptions should be made for the employees of foreign units of Dutch banks, Moerland said.
“For commercial staff in London, Hong Kong, New York and Sao Paulo you can’t get away with it,” he said. “Either you have to have different employment conditions or pull out of these countries. That is not in the interest of Dutch companies operating there.”
The basic salary of Gerrit Zalm, Chairman of state-owned ABN Amro, was 759,375 euros in 2012, a 1.25 percent increase from 2011 in line with a banking industry collective labor agreement, according to the firm’s annual report published today.
ABN Amro’s other six board members earned 607,500 euros in 2012. The bank’s supervisory board awarded them additional compensation of 100,000 euros, in line with a transition agreement allowed for by the law prohibiting bonuses for firms that got state aid. The executives, including Joop Wijn and Wietze Reehoorn, all waived the funds in 2012 and will also forfeit the allowance in 2013, spokesman Arien Bikker said by telephone.
A Dutch committee monitoring adherence to the banking code in December found banks have improved risk management in the last two years and that a vast majority of lenders adhere to the bonus rules. Progress, however, isn’t reflected in the public’s view of banks, a survey in October commissioned by the committee showed.
“At some point you have to make a choice as a country, a taxpayer, on what you consider acceptable,” Harald Benink, professor of banking and finance at Tilburg University in the south of the Netherlands, said in a phone interview.
SNS Reaal showed that the Netherlands is still vulnerable to shocks to its financial institutions and the government will urge banks to lower wages for all employees, Dijsselbloem said. Wages in finance have risen 74 percent to 37.73 euros per hour since 1995, outpacing an increase in the services industry of 53 percent to 22.40 euros in the period, he said.
Robert van Veggel, managing director of recruitment firm Hays Plc (HAS) in the Netherlands, said Dutch banks may struggle to compete for talent amid the stricter pay rules.
“Right now there may be a shortage of jobs but in the longer term however it will remain an issue to attract the best people,” Van Veggel said in an interview. “It’s not just about the money, it’s also about a sense of pride, about the industry’s image. This combination has come under pressure from all measures targeted at the industry so far.”
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