Netherlands Gets New Bank Bonus Code, UK Ponders Tax

by Ulrika Lomas, Tax-News.com, Brussels

11 September 2009

Under a Provisional Banking Code published by the Netherlands Bankers Association (NVB), and applying to all banks with operations in the Netherlands, the level of bonuses to banks’ management board members will be restricted. A new UK poll suggests there is appetite for a tax on bonuses in that country.

Under the new code, the first of its kind internationally, a material part of any bonuses awarded to a management board member will be conditional and only be paid after three years at the earliest. Furthermore, bonus shares granted without financial consideration shall be retained for a period of at least five years or, at least, until the end of the employment, if that period is shorter. If options are granted, they shall, in any event, not be exercised in the first three years after the date of granting. In that way, the NVB said, the allocation of bonuses will be related to the bank’s long-term objectives.

In addition, every bank will set a maximum ratio of bonuses to fixed salary that is appropriate for the bank in question. The bonus per annum of members of the executive board shall not exceed 100% of the member’s fixed income. Bonuses will be based both on the performance of the individual, as well as the performance of the bank as a whole. Performance criteria will be defined in terms that are as objective as possible in the bank’s remuneration policy.

When performance is assessed based on the pre-determined performance criteria, financial performances will be adjusted to allow for estimated risks and the cost of capital employed. The banks’ supervisory boards will be authorised to reclaim excessive bonuses allocated to a member of the executive board based on inaccurate data (whether or not the inaccurate data is financial in nature).

The new Dutch banking code will not come into effect until 1 January 2010. However, when banks present their annual report for the 2009 financial year, they will have to explain what preparatory steps they took this year to ensure that they are able apply the code properly from that date.

There will be an independent committee to review the implementation of the code. This committee will be appointed by the NVB in consultation with the Dutch Ministry of Finance. The code has been welcomed by the government, and held out as an example for global use.

In a separate development, in the UK, almost three-quarters of those polled by YouGov for Compass said that a tax should be put on bankers’ bonuses of over GBP10,000 (USD16,000). Furthermore, almost 70% agreed that taxes on City transactions to reduce short-term risk-taking.

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