THE HAGUE, 10/09/09 - The bonus of executive board members of Dutch banks may in principle not be higher than the fixed annual salary, under a code of conduct that sector organisation NVB has drawn up in consultation with Finance Minister Wouter Bos. He praised the agreements yesterday as "a unique step in the world." According to Bos, this is the first time that a banking sector in a country has taken the initiative to put a ceiling of one year's salary on bonuses. Also, the supervisory board will have claw-back powers under which the variable remuneration can be adjusted if there is a question of an 'unintended or unreasonable outcome'. But no bonus ceiling has been agreed in the code for employees other than executive board members, such as traders or investment bankers. Additionally, retention, exit and welcome bonuses are not banned. "We are no island. Our banks also have people working on Wall Street or in Shanghai," said NVB chairman Boele Staal.

Additionally, in a general sense none of the agreements in the code of conduct are binding. According to the principle of 'comply or explain' the banks can ignore the code, as long as they inform their shareholders and get their permission. Bos said he will anchor the banking code in law, but the 'adopt or explain' principle will then be retained. According to Het Financieele Dagblad newspaper, the linking of the bonuses to the fixed salary is nonetheless a breakthrough. Six years ago, a similar plan for all bourse-listed companies foundered due to broad opposition, especially from big international companies like Philips, Unilever and ING. The code that has now been agreed however only applies to management of banks.

Boele Staal claims there was no dissent among his members. "Of course the feeling exists: The Netherlands was not a front-runner with excessive remuneration. Why should we then have to be a front-runner with reforms? At the same time, everyone was very conscious of the debate in society" and a gentlemen's agreement concluded earlier with Bos.

A monitoring committee will check compliance with the code, according to Bos. He terms the agreement an important and good step on the road towards the recovery of confidence in the financial sector.