Implementing or changing a remuneration policy? Do not forget the works council!

Remuneration policy and applicable regulations

As mentioned, a remuneration policy is a set of agreements covering all forms of employee remuneration within a company. This includes financial remuneration, such as salaries, pay scales, allowances, end-of-year payments, bonus schemes and profit-sharing schemes. However, it is also possible to include non-financial rewards, such as time off in lieu, training budgets, discounts on insurance or certain services, gym memberships, free meals, and so on.

Every company is free to draw up a remuneration policy. Such a policy can take various forms, for example in a staff handbook, terms and conditions of employment or – where applicable – a collective labour agreement. In principle, employers are free to include any arrangements they deem appropriate for their organisation. For public limited companies (naamloze vennootschappen), there is a statutory obligation to draw up a remuneration policy for their board of directors. No such obligation applies to other legal entities, although there is a legal obligation for private limited companies to determine a form of remuneration for its managing directors (which is done by the general meeting unless the articles of association provide otherwise).

Please note: special rules on remuneration policies apply to certain sectors. As an example, companies active in the financial sector are subject to the Dutch Financial Supervision Act (Wet op het financieel toezicht) and the Dutch Financial Undertakings Remuneration Policy Act (Wet beloningsbeleid financiële ondernemingen). Listed companies in particular are subject to the special rules of the Dutch Corporate Governance Code.

The role of the works council in remuneration policy

Companies that have drawn up or are planning to draw up a remuneration policy will generally be larger companies. Larger companies often also have a works council, provided they have at least 50 employees. Given the importance of remuneration within the organisation, it may be expected that the works council also has a say when it comes to remuneration. This is no different for the remuneration policy.

As mentioned, public limited companies are obliged to draw up a policy on the remuneration of directors. Before this remuneration policy can be adopted, the works council (if established) must be given the opportunity to formulate a view on the remuneration policy. The works council may express this view at the general meeting.

Large employers with more than 100 employees are obliged to inform the works council in writing at least once a year about the level and content of employment conditions within the company. This includes, amongst other things, information on employment conditions and remuneration ratios in relation to different groups of employees, the management board and the supervisory board. An annual report must also be provided showing how these terms and conditions of employment and remuneration ratios compare in percentage terms with one another and with those of the previous year.

Furthermore, the works council has a supportive and monitoring role within the company. The works council must monitor compliance with the regulations applicable within the company regarding terms and conditions of employment as much as possible. The works council must also, in general, guard against discrimination within the company and promote the equal treatment of men and women. In doing so, the works council may make use of the formal co-determination rights it holds under the Dutch Works Councils Act (WCA).

The works council’s formal co-determination rights include, amongst other things, the right of consent (Section 27 WCA) and the right to consultation (Section 23/24 WCA). The works council’s right of consent applies to any proposed decision by the management to establish, amend or revoke a remuneration or job evaluation system. The works council also has a right of consent in respect of pension schemes and profit-sharing schemes. This enables the works council to influence the remuneration policy within the company. In addition, the works council may discuss terms and conditions of employment and remuneration ratios within the company during consultations with the management, either on the works council’s own initiative (Section 23 WCA) or during the Section 24 WCA consultations, which take place at least twice a year.

Practical considerations

A remuneration policy can be a useful tool within your organisation, but do not forget to involve the works council in good time! In doing so, you may wish to bear the following points in mind:

1. Ensure a transparent and well-founded remuneration policy
   Clearly set out how remuneration is determined and what principles are applied. A transparent policy increases support within the organisation and helps prevent discussions about equal treatment and pay gaps.
2. Involve the works council in good time when making changes
   Are you planning to introduce, amend or withdraw a remuneration or job evaluation system? If so, check in good time whether the works council’s approval is required. Failure to follow the correct employee participation procedure may lead to delays or the decision being overturned.
3. Check that you are complying with the information requirements
   Employers with more than 100 employees must inform the works council annually about the terms and conditions of employment and pay ratios within the organisation. Ensure that this information is provided in full, is up to date and is provided in good time.
4. Take sector-specific regulations into account
   In addition to the general rules, additional obligations may apply to certain organisations, for example in the financial sector or for listed companies. You should therefore always check which laws and regulations apply to your organisation before adopting or amending the remuneration policy.

Do you have any questions about remuneration policy and/or the works council’s involvement in remuneration matters within your organisation? Our specialists in Employment Law will be happy to assist you. Please feel free to contact us or sign up for our newsletter.