November 26, 2013 / 4:00 PM / 6 years ago

UPDATE 1-Dutch government to cap banker bonuses

AMSTERDAM, Nov 26 (Reuters) - The Dutch government announced plans to cap bonuses and limit severance payments in the country’s scandal-scarred banking industry on Tuesday, seeking to remove what it described as incentives for excessive risk-taking.

The changes, which must still pass through parliament before taking effect in 2015, are stricter than a proposed Europe-wide banker bonus cap but could prove popular in the Netherlands, where banker pay has come in for harsh public criticism.

“The new European rules to set limits on pay do not go far enough in my opinion,” said Finance Minister Jeroen Dijsselbloem in a statement. “The time for excessive bonuses and severance pay has passed.”

The government plans to cap bonuses in the country’s financial sector at no more than 20 percent of an employee’s total salary. The cap would apply to everybody working for Dutch financial firms, though there would be exceptions.

Dutch bank employees based in EU countries other than the Netherlands would see bonuses capped at 100 percent of salary, and outside the EU bonuses could run to 200 percent of salary.

“Around the world, perverse remuneration incentives are seen as one of the causes of the financial crisis,” Dijsselbloem said in a letter to parliament explaining the proposals.

“It’s about incentives that can lead to taking undesirable and irresponsible risks, and incentives that can lead to the customer’s interests being ignored, as well as to a one-sided focus on the short term,” he added.

The plan would also ban guaranteed bonuses and set strict conditions for severance payments for bank employees. Senior managers’ severance pay would be limited to one year’s salary.

“Some of the top traders will go for the big money and switch employers,” Dijsselbloem told broadcaster RTL, saying the change puts the Netherlands out front in terms of tighter bonus rules.

“That was a conscious decision. We paid for the risks that were taken and the bill was paid for by the taxpayers and we are not going to accept that any longer.”

The Dutch banking sector once numbered several front-rank global players including ING and ABN Amro, but is now a domestically-focused shadow of its former self, with thousands fewer jobs and virtually no international banking activities.

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