Government take cautious stance on curbing top salaries

At the end of 2007, the Frijns Committee, which makes recommendations on policy concerning top salaries, published its third annual report. The committee wants to maintain self-regulation in companies and again spoke out against legislation. Although the finance minister repeatedly referred to the report’s findings in the House of Representatives debate on self-enrichment in top positions, he plans to uphold his original intention to address excessive remuneration using tax measures.

Committee says no to legislation

The Dutch Corporate Governance Code Monitoring Committee (Monitoring Commissie Corporate Governance Code) – known as the Frijns Committee after its Chair, Jean Frijns –published its third annual report (389Kb PDF) in December 2007. The committee contributes towards shaping policy on top salaries and, in so doing, issues recommendations concerning excessive remuneration for chief executives. However, the committee is against new legislation because it fears that companies will, as a result, move their headquarters abroad. Moreover, the committee believes that self-regulation in companies is sufficient to prevent excessive remuneration for top executives.

According to the committee, companies must clarify the maximum salaries to be received by chief executives on their appointment with the company. The committee believes that a voluntary salary limit could prevent excessive remuneration in the private sector. Mr Frijns, the former Chief Executive Officer of the Pension Fund for Employees in the Governmental and Education Sectors (Stichting Pensioenfonds ABP, ABP), emphasises the importance of supervisory directors for a sound policy on remuneration. The supervisory directors themselves must establish the principles and standards with which executives must comply in order to receive bonuses. Mr Frijns highlights self-regulation, especially with respect to keeping excessive remuneration in check. However, policy can only be imposed at a European level. At present, after all, top wages in the Netherlands are in line with those of the rest of Europe.

Employers positive

The Confederation of Netherlands Industry and Employers (Vereniging van Nederlandse Ondernemingen-Nederlands Christelijk Werkgeversverbond, VNO-NCW) was the only social partner organisation to respond positively to the plans of the Frijns Committee. VNO-NCW particularly supports the idea that new legislation in this area is unnecessary. The Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) was critical of the committee’s plans and considers that self-regulation is totally insufficient when it comes to setting and regulating top salaries. The politically more left-oriented members of the Dutch House of Representatives (Tweede Kamer der Staten-Generaal) also responded critically. In 2007, the Dutch Corporate Governance Code – commonly known as the Tabaksblat Code – showed that self-regulation is unsuccessful.

Tabaksblat Code falling short

The Frijns Committee evaluates the Tabaksblat Code on an annual basis. The code was introduced in 2004 to restore the balance of power at management level in Dutch companies. This was deemed necessary in the wake of major accounting scandals associated with the supermarket chain Ahold and the telecommunications company KPNQwest in the Netherlands at the end of the 1990s. The Tabaksblat Code provided a choice for a code of conduct for listed companies, with the aim of promoting open reporting, greater accountability for the supervisory board and strengthening shareholder control and protection. Nonetheless, company compliance with the code is so far lagging behind.

In 2006, FNV labelled the Tabaksblat Code as a ‘Trojan horse’: by publishing details on salaries, managers tend to demand higher wages because they will not want to fall behind their colleagues. The Labour Party (Partij van de Arbeid, PvdA) concludes that no effective result has come of the code’s intention to control the salaries and bonuses of top managers.

Finance minister appears cautious

In 2007, the Minister of Finance, Wouter Bos, was called on repeatedly by the House of Representatives in emergency debates to take effective measures to control top salaries, especially within the scope of company takeovers. The minister recognises that a reasonable connection between wages and performance no longer exists; he even highlights the seriousness when it comes to the amount of severance payments. Furthermore, the minister believes that the position of employees could be improved. However, the scope to allow for concrete measures in this regard is narrow.

The Tabaksblat Code is deliberately based on the voluntary compliance of companies, in order to avoid frightening off companies to remain or set up business in the Netherlands. While Minister Bos repeatedly cited the findings of the Frijns Committee report in the House of Representative debate on self-enrichment in top management positions, he nonetheless appears cautious now that the report has been published. Under pressure from his government coalition of the Christian Democratic Alliance (Christen Democratisch Appèl, CDA), the Labour Party (Partij van de Arbeid, PvdA) and the Christian Union (ChristenUnie, CU), he was forced to withdraw his plan to tax the country’s highest earners more severely. The minister did propose a plan to control excessive bonuses paid to those in top positions. Despite the Frijns Committee’s objections, overly high pension scheme donations from companies for chief executives must also be curtailed. Minister Bos intends to follow this policy line. Finally, in January 2008, the Minister of Justice, Ernst Hirsch Ballin, put forward a legislative proposal awarding works councils the right to take part in consultations on top salaries.

Marianne Grünell, Hugo Sinzheimer Institute (HSI)

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