Netherlands: the Code Banken (Banking Code)

The Netherlands Banking Association has published a Banking Code (Code Banken) in response to the report titled "Restoring Trust" published earlier this year by the Advisory Committee on the Future of Banks. The recommendations from chapters one and two of the Advisory Committee’s report have been used as the basis for the new Code. The Code will operate on a 'comply or explain' basis and comes into force on 1 January 2010. It will apply to all banks licensed under the Financial Supervision Act (Wet op het financieel toezicht), irrespective of the location of their activities.

The Code contains principles based on the Dutch Corporate Governance Code (December 2008) and focuses on the operation of executive and supervisory boards, risk management, auditing and remuneration. With regard to remuneration, the following principles are included in the Code (it will be very interesting to see how 6.3.1 operates in practice):

6.3.1  The total income of a member of the executive board shall be in reasonable proportion to the remuneration policy adopted by the bank. At the time when his or her total income is decided, it shall be slightly below the median level for comparable positions in the relevant markets both inside and outside the financial sector. The relevant international context shall be a major factor.

6.3.2  The remuneration in the event of dismissal may not exceed one year’s salary (the ‘fixed’ remuneration component). If the maximum of one year’s salary would be manifestly unreasonable for an executive board member who is dismissed during his first term of office, such board member shall be eligible for severance pay not exceeding twice the annual salary.

6.4.2 Every bank shall set a maximum ratio of variable remuneration to fixed salary that is appropriate for the bank in question. The variable remuneration per annum of members of the executive board shall not exceed 100% of the member’s fixed income".