Dutch Finance Minister Jeroen Dijsselbloem is sticking with a plan to limit bonuses in the country’s financial industry to a fifth of fixed pay, ignoring pleas by banks and insurers for a level European playing field.
“Perverse incentives such as high compensation and bonuses are globally seen as one of the causes of the financial crisis,” Dijsselbloem said in an e-mailed statement today. “For everyone working in the Dutch financial industry, possible bonuses will be capped at 20 percent of fixed pay as of 2015.”
The government, a coalition of the Labor and Liberal parties, vowed in 2012 to ban excessive bonuses to limit risks from the financial industry, which measures more than four times the Dutch economy. Dijsselbloem is introducing the draft legislation today, after putting the proposal out for public comment in November. The measures are more stringent than European Union rules, which will ban bonuses of more than twice fixed pay starting in 2015.
Dutch firms including ING Groep NV (INGA), the nation’s largest financial services group, responded with warnings that excessively strict compensation caps may harm their ability to attract and retain staff. The Dutch Association of Insurers have also criticized the rules, saying their European peers are not subject to bonus caps.
“The bulk of Dutch banking activities is in the Netherlands while the real competition for staff, for traders, is in the international activities and we have made some exemptions possible for those,” Dijsselbloem told reporters in The Hague today. “That doesn’t apply to regular bank employees, which account for 90 percent or more of the total.”
The Netherlands had already curbed variable compensation more than other countries. A banking code of conduct has limited bonuses for top executives to 100 percent of salaries since 2010, and there is a ban on bonuses for executives of firms receiving state aid. The initiatives reflect the size of the financial industry and the cost of bailouts since the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. in 2008.
The Dutch have bailed out three of their four biggest lenders and fully own two banks and two insurers. Public anger toward the industry also flared up in October when Rabobank Groep, the country’s second-biggest lender, was fined 774 million euros ($1.05 billion) for rigging interbank lending rates. As recent as February 2013, the government nationalized SNS Reaal NV at a cost of 3.7 billion euros.
Dijsselbloem said today he made tweaks to his initial plans after criticism from the Dutch Council of State, which advises the government on legislation and governance. A rule forcing banks to reduce variable pay if their earnings drop was scrapped. The government also cut a provision that would allow it to introduce further rules in case companies excessively increase fixed pay to compensate workers for the loss of variable remuneration.
As partial compensation, an increase in fixed salaries is allowed for employees who performed well over the years and received bonuses accordingly, Dijsselbloem said in an explanatory note to the draft act. In the opposite case, if a bonus was never awarded, an increase of fixed pay can’t be considered, he said, adding regulators will act against “evasive behavior.”
The Netherlands had 27 bankers earning more than 1 million euros in 2012, or 0.03 percent of all staff, according to a report published by the European Banking Authority today. That compared with 100 in Spain and 2,714 in the U.K. The Dutch bankers had an average bonus-to-salary ratio of 76 percent, less than the 175 percent average in the EU and among the lowest in an EBA sample of 20 countries.
The EBA today said it may restrict role-based payouts for senior bankers as it seeks to crack down on potential loopholes in bonus rules. HSBC Holdings Plc was among U.K. lenders that revealed plans for such allowances. A total of 665 HSBC employees will receive a fixed-pay allowance that is neither salary nor bonus, Chief Executive Officer Stuart Gulliver said in February.