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Dec 28, 2016

Dutch governance code changes focus on internal pay gaps

Transparency in pay means investors will be able to flag up the issue

Amendments to the Dutch Corporate Governance Code for listed companies include a clause requiring firms to publish the size of the pay gap between senior staff and shop floor workers, Corporate Secretary sister publication IR Magazine reports.

The intention is that, by publishing the size of the pay gap, investors and other interested parties will be able to flag up the issue if they feel the gulf is becoming too wide.

Research by the Volkskrant, the Dutch daily newspaper, earlier this year showed senior executives at some Dutch companies earn more than 100 times as much as their average employees.

The revised code says companies would be free to compare their position to other firms to show the pay gap is not unreasonable. It also states that supervisory board members may not be paid in shares and are to be limited to eight years in the job.

The revamped code applies to any financial year starting on or after January 1, 2017 and every Dutch listed company needs to state in its management report the extent to which it complies with the provisions of the code. If a company does not comply, it has to explain why.

Two extensions of two years will be permissible if a proper explanation is given in the annual report.

The code has been significantly revised in both structure and content, and is based on a number of specific themes. It places greater emphasis on long-term value creation and risk management, and it introduces culture as a new element.

The Dutch Corporate Governance Code Monitoring Committee simplified the code by removing overlaps and conflicts with laws and regulations, and it includes new corporate governance developments.

Jaap van Manen, chairman of the Committee, says: ‘In the code we have placed greater emphasis on management board members’ and supervisory board members’ personal responsibility.

‘They are also required to render account of their functioning in greater detail. We feel this revised code provides a practice-based framework for corporate governance in the coming years.’