In early 2003, there has been a widespread public outcry in the Netherlands about what are perceived as excessive increases in the remuneration of senior managers and directors, at a time of economic downturn, poor company results and centrally agreed wage restraint for 'normal' workers. In April, the Dutch Trade Union Federation (FNV) withdrew, in protest, from central consultations with employers' organisations and the government, stating that it cannot 'sell' wage moderation to its members if senior management ignores it, and calling on the VNO-NCW employers' organisation to act to limit top pay rises. VNO-NCW claims that it is powerless in the face of international competition. The government is planning some measures in this area, while legislation on top pay disclosure, with a role for works councils, has been proposed in parliament by the opposition Green Left party.
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In early 2003, there has been a widespread public outcry in the Netherlands about what are perceived as excessive increases in the remuneration of senior managers and directors, at a time of economic downturn, poor company results and centrally agreed wage restraint for 'normal' workers. In April, the Dutch Trade Union Federation (FNV) withdrew, in protest, from central consultations with employers' organisations and the government, stating that it cannot 'sell' wage moderation to its members if senior management ignores it, and calling on the VNO-NCW employers' organisation to act to limit top pay rises. VNO-NCW claims that it is powerless in the face of international competition. The government is planning some measures in this area, while legislation on top pay disclosure, with a role for works councils, has been proposed in parliament by the opposition Green Left party.
Late 2002 and early 2003 has seen a public controversy over top managers’ pay, with the issue considering considerable attention in the media. For example, pension funds have described a new package of performance-related pay for senior managers at the Reed Elsevier publishing company as excessive and completely unacceptable. At the Philips electronics group, a controversial proposal has been made to convert the share option scheme for leading executives into a share scheme, in the context of a market downturn. UK shareholders of the Shell petrochemicals group reacted furiously to a plan to offer top executives – in addition to their salaries, option schemes and bonus schemes – an extra long-term bonus scheme, consisting of two years’ worth of salary in shares, to be paid out every three years if performance targets are met. At the end of April 2003, opponents of the scheme lost a vote at a meeting of Shell shareholders. At Unilever (chemicals), ABN Amro (finance) Fortis (finance), Dutch Railways (NS), TPGPost (postal services) and Rabobank (finance), there have been cases of managers who are seen as performing badly losing their jobs, but leaving with 'golden handshakes'. At ING Group (finance), the board of directors is to increase the pay of its members by 60% over the next three years, in order to catch up with a 'remuneration shortfall' of 40% compared with their counterparts in other countries.
These are only a few examples of cases reported in the media, with some commentators making comparisons with the wage restraint being urged for 'normal' workers, with a maximum pay increase of 2.5% agreed centrally by the social partners for 2003 (NL0212101N). Even (former) members of company supervisory boards are starting to speak out in public about these developments in senior management pay, and efforts are being made in some quarters to limit such arrangements by applying existing regulations, for example in respect of severance packages, at subdistrict courts. The pension funds, among the largest shareholders in the Netherlands, also see the development of high variable remuneration and generous severance packages for top executives – often including a pension payment – as unacceptable.
FNV suspends consultations
The main policy approach of the trade union movement during the recent period of economic growth was that all employees, and not just managers, should receive a share of good business results (NL0009106F). Now that the economy is not doing so well and corporate results are worse, the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) is considering whether to take legal measures to restrain senior management pay. Trade unions can apply to the Enterprise Section of the courts to take proceedings for mismanagement against companies whose managers are receiving 'excessive' remuneration.
Furthermore, in April 2003 FNV suspended central-level consultations with employers' organisations in protest at developments in top management pay. It says that it is not interested in talking about wage moderation as long as employers’ organisations are unable to persuade their members to restrict management salary increases to the 2.5% maximum set out in the central agreement for 2003. The chair of FNV, Lodewijk de Waal, has said he will return to the table only if the Confederation of Netherlands Industry and Employers (Vereniging Nederlandse Ondernemers-Nederlands Christelijk Werkgeversverbond, VNO-NCW) – the main employer’s organisation – presents a 'watertight and controllable' system, under which the salaries of directors of large companies will not rise any faster than the average wages of other employees. If this does not happen, the government should intervene, according to Mr De Waal. He claims that this may be the end of the Dutch 'consultation economy'- FNV has not only suspended consultations with the employers, but also with the government, which places a high value on central agreements. The Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV) has distanced itself explicitly from FNV’s position and wants to keep talking with employers and with the government in particular.
VNO-NCW regrets the suspension of central consultations, which it regards as a desperate move on the part of FNV, and one which is not in the interests of employees, particularly in the current economic conditions of increasing unemployment and impending recession. VNO-NCW feels that FNV is asking too much of it, as it claims that an employers' organisation cannot impose a specific management salary increase on all companies. The Netherlands has an international economy with many multinational companies based elsewhere, which are not subject to Dutch central agreements, and companies must compete internationally for top managers. VNO-NCW has also questioned the FNV's demands to the government. Listed companies are already required to disclose publicly directors' salaries, and legislation is being prepared which will strengthen somewhat the position of shareholders in this area (see below). VNO-NCW can envisage the government introducing legislation on severance payments. The only other possibility, in the employers' view, would be to impose tax-related measures, but it must be remembered in this respect that the Netherlands is not an island and that multinational companies are not limited to the Netherlands as a location.
Government measures
The Minister of Social Affairs, Arie Jan de Geus, has responded directly to FNV’s position. The Minister wants to bring an end to excessive increase in top salaries and bring them into line with the wage restraint targets set by the government, but he is focusing more on the instruments. Stock exchange-listed companies are already required to provide full disclosure regarding directors’ salaries, and there is legislation at an advanced stage of preparation which will give shareholders slightly more say in the matter of remuneration for the board of directors, ie on share option schemes. However, salaries, bonuses and golden handshakes remain matters for company supervisory boards to decide. The Minister has also taken steps, in the sectors over which he has direct influence – public education and healthcare – to rein in top salaries by making them public. New reporting rules for the healthcare sector will be ready in the summer of 2003 and will come into effect in 2004.
The Finance Minister, Hans Hoogervorst, is now proposing new tax measures relating to top pay. He has also promised that the KPN telecommunications group, one-third of which is owned by the state, will be addressing its senior managers' salaries. Nevertheless, as a major shareholder, the government has not voted against top salary increases at the company.
A bill put forward by the opposition Green Left (Groen Links) party is currently being discussed in the Lower House of parliament. This legislation would require the disclosure of the salaries of leading executives in all companies with more than 50 employees, and not just listed companies. Another proposal is to give works councils a major role in the matter, with a reporting requirement to the works council, which would be able to ask questions on whether or not salary differences are justified. It would then be up to the directors to defend these differences. Minister De Geus feels that a right for works councils to information on top salaries is going too far, is too one-sided and involves too much state interference. Other 'stakeholders' would also have to be involved. At the Minister’s request, parliament has delayed discussion of the bill until the tripartite Social and Economic Council (Sociaal-Economische Raad, SER) has issued its opinion on the matter. This opinion is due before summer 2003.
Commentary
As occurred in 2000, the public controversy about the salaries of top executives and directors has reached fever pitch, especially given the the official call for wage moderation and possible legislation on severance pay and golden handshakes (NL0207103F). In this climate, it is understandable that FNV is boycotting central consultations. 'Selling' government-supported wage restraint to the trade union rank and file, while top executives pay themselves more even when results are disappointing, damages the credibility of the trade union movement. Employers, through their main representative organisation VNO-NCW, are no longer justifying such increases on the basis of good company results, but of the international context in which these managers and directors are operating. While even respectable financial newspapers have been ridiculing this attitude as mercenary, other news media have been pointing out the upward spiral which this kind of logic can lead to. The Minister of Social Affairs has taken a business-like first step, by proposing legislation on pay transparency in the not-for-profit sectors, while the Finance Minister is proposing new tax measures. It is now up to the Social and Economic Council to assess whether the works council is an adequate instrument for bringing an end to what former Prime Minister Wim Kok referred to in 2000 as the 'exhibitionistic self-enrichment' of top management. (Marianne Grünell, HSI)
Eurofound recommends citing this publication in the following way.
Eurofound (2003), Major controversy breaks out over top pay, article.
