Bos and banks agree over bonuses

Dutch finance minister Wouter Bos has reached a 'gentlemen's agreement' with the financial sector about bonus moderation.

Bos has repeatedly expressed his anger and frustration about the bonus culture at Dutch banks - especially when bonuses were paid out at banks that were previously rescued by the Dutch government.

The finance minister responded furiously earlier this month when it came out that the new CFO of financial group ING is getting 100,000 shares as a 'golden hello'. The shares are currently worth 400,000 euros. ING got a 10 billion euros government bailout and saw the government guarantee 80 percent its risky mortgage portfolio in the US.

Public outrage

ING's ceo Jan Hommen later issued what he called a 'moral appeal' to the frim's 1,200 top managers to return their 2008 bonuses. Last Friday, ABN Amro followed suit appealing to some 50 senior executives not to accept special bonuses promised them over 2008 and 2009.

Public outrage also surrounded the severance payment of Jan Peter Schmittmann, the former head of ABN Amro, who received 8 million euros after his bank was nationalised last October. That golden handshake was challenged in court, but a judge decided Schmittmanns contract could entitle him to an even larger sum.

Referring to that case, Bos said: "It is not because of lack of annoyance and anger on our part that some bonuses still endure. There are legal boundaries that we have to accept."

The Dutch parliament had given Bos until mid-February to make the banks agree to a new bonus policy. Bos had threatened the financial sector that new legislation could be adopted to curtail the bonus system unless the banks agreed to take action themselves.

The United States last week introduced a special tax rate for bonuses received by people whose normal salary is more than 250,000 US dollars and who work for a company that has received more than 5 billion dollars in government aid.

'Extreme reticence'

Monday's agreement aims to restore the public's confidence in the banking and insurance sector. Representatives of the sector have committed to a "sustainable and restrained bonus policy" in the future. They also agreed to do away with reward systems that encourage "irresponsible risk-taking geared towards the short term and shareholder value".

Other points include:

- for the duration of the financial crisis, any salary increases at the top cannot be larger than what applies to the rest of the staff;

- the board of directors at financial firms that have benefited from government support will forgo variable rewards in 2009;

- senior management at these firms will show "extreme reticence" with regard to variable rewards;

- 'golden parachutes' will be limited to one year's salary.

In a reaction, Bos said on Monday: "It's time for bonuses to get back to normal." He said "excessive bonuses have brought the economy to the brink".