Employee bonuses in the Netherlands

Bonuses are frequently used by employers as part of employees’ remuneration packages. There are no specific restrictions on how a bonus scheme can be set up or can be structured and schemes can be discretionary or guaranteed. The only restrictions are those of the general law that an employer must not discriminate on any of the prohibited grounds.

Bonus scheme

The bonus scheme may (or may not) set out some of the factors that may be taken into account by the employer, when deciding if a bonus will be awarded and if so, the bonus amount that will be awarded. If the factors are set out, it should be clear whether the list is a complete and limitative list of factors that the employer should take into account or only indicative of some of the factors that may be taken into account. It is common for a bonus scheme to state that in order to be eligible to receive a bonus award an employee must still be actively employed by the employer on the bonus payment date.

If an employer wants to implement, change or withdraw a bonus scheme, the consent of the works council may be required. Furthermore, any category of employee can bring a claim challenging the level of their bonus. Therefore, managers must be aware that they may, in the future, have to justify their recommendation in court.

Poor performers

In discretionary bonus schemes, performance is a criterion that is very relevant to the assessment of the bonus award and the weighting attached to this criterion is likely to be significant. However, the employer must still exercise its discretion fairly. With guaranteed bonuses, this will depend upon the precise wording of the bonus scheme.

Sickness and maternity leave

During sick leave an employer is obliged to pay (part of) the employee’s salary for a period of 104 weeks. If the bonus is a component of the salary, the employee is in principle entitled to the bonus. However, the purpose of the bonus will be relevant. Case law shows that if a bonus is linked to the employee’s performance, the employee will be entitled to the average amount of the bonus that he/she would have earned if he/she had not been absent due to sickness. If the bonus is only linked to company results, the employee will not be entitled to the full bonus but, rather, an amount pro-rated to reflect the time that he/she were at work.

A bonus entitlement may be pro-rated to the portion of the financial year during which the employee has actually worked, depending on the scheme. Since the employee is not entitled to continued payment of wage during maternity leave, the employee is in principle also not entitled to a bonus during the maternity leave. Please note that if the employee is on sick leave as a result of the pregnancy, the employer is allowed to withhold the bonus if this also applies to male employees during sick leave.

Part time employees

As far as the bonus criteria are related to time spent working, part time workers should receive a pro-rated bonus. The employer should consider the level of the bonus amount that the employee would have received, when the employee had actually been working full time.

Termination

It is important to note that if a bonus is considered to be part of the employee’s income, a bonus also will be taken into account when calculating the amount of compensation awarded to the employee in case of termination of employment. When a contract is dissolved by the Cantonal Court or if the employee is given notice after obtaining prior approval from the government, the employee who has been in service for a total of two years or more will in principle receive compensation in the form of a transition budget payable by the employer, unless the dismissal was prompted by seriously culpable conduct on the part of the employee. The amount of the transition payment is composed as follows: 1/3 gross monthly salary for each year of service over the first ten years of service and from ten years of service onwards 1/2 gross monthly salary for each year of service, up to a maximum of €76,000 gross or one year’s salary if this is more than €76,000 gross.

Bonus cap

As per 07 February 2015 the Act on the remuneration policy of financial firms (the Act) entered into force. The Act includes a bonus cap limiting variable remuneration to 20% of the fixed remuneration. The Act is in principle applicable to all financial firms that are currently supervised/ regulated under the Dutch Financial Supervision Act (Wet op het financieel toezicht) and have their statutory seat in the Netherlands (except for fund managers), including all subsidiaries of those financial firms, located both in and outside the Netherlands, all group companies of which the parent company of the group has its seat in the Netherland (except those whose "main activities" do not include activities within the financial sector) and branch offices in the Netherlands of financial firms with their seat in another state. Please note that the bonus cap is, in principle, applicable to all individuals performing activities under the responsibility of the financial firm.

The Act is not applicable to managers under the scope of the Alternative Investment Fund Managers Directive (AIFMD) and/or the Undertakings for Collective Investment in Transferable Securities Directive (UCITSD), branches under the scope of CRD IV (note that these branches will be subject to the CRD IV bonus cap under their home state rules) and financial services companies that do not serve clients and have no external functions (eg captive insurance companies that only perform services on behalf of the group). Please note that in certain situations a bonus cap higher than 20% is allowed. The most important exemptions are individuals who are not solely remunerated based on a collective labour agreement, may receive a higher variable remuneration (with a maximum of 100%) as long as the average bonus cap within the financial firm with regard to comparable individuals does not exceed 20%, a cap of 100% is applicable to individuals whose main activities take place in another country than the Netherlands (being a Member State) and a cap of 200% is applicable to individuals whose main activities take place in a third country (ie not a Member State), if the shareholders of the financial firm have agreed to that.

In addition to the bonus cap, the Act includes furthermore restrictions and requirements in relation to retention bonuses, guaranteed bonuses, severance payments and the obligation for financial undertakings to have a sound remuneration policy.

Claw back of bonuses

As per 01 January 2014, the Act regarding the authority to adjust and claim back bonuses and profit-sharing distributions from directors and day-to-day policymakers entered into force (the Claw Back Act). The Claw Back Act applies to all public limited companies and all financial institutions within the meaning of the Financial Supervision Act. The main goal of the Claw Back Act is to strengthen the position of the supervisory board (or in the absence thereof, another competent body) in respect of the remuneration of directors and day-to-day policymakers and the Claw Back Act provides the supervisory board three measures in this respect. The first measure is the authority to reduce amounts of bonuses that have not been paid yet, provided that the bonus is unacceptable on the basis of the rules of reasonableness and fairness. The second measure is the authority to (partly) claw back bonuses, which were paid out already, provided that these payments have been made on the basis of incorrect information in respect of targets or circumstances of which the actual bonus payments were subject to. The third measure is the obligation to deduct an increase in value of (certificates of) shares and/or option rights from the remuneration of directors and day-to-day policymakers, the so called “cream off policy” (afroomregeling). This obligation exists in case of i) an announcement in respect of a public takeover bid, within the meaning of the Financial Supervision Act, ii) an announcement in respect of a proposition of a legal merger or divestiture or iii) submitting an important decision for approval from the General Meeting of Shareholders.