Legislative proposal: extension powers works council in respect of directors’ remuneration

On 13 June 2016, a bill was introduced that aims to support transparency of and debate on remuneration ratios within large companies. According to the Minister, this will serve the interests of employees. The bill entails, in short, that the management board will, on an annual basis, be obliged to engage in discussions with the works council on the development of the remuneration ratios, including those of the management board itself. The proposed amendment of the Works Councils Act (WOR) explains existing obligations, which are currently laid down in the law in various places. The amended provision thus creates virtually no new obligations. It will apply to companies generally employing more than 100 people.

The reason for this change in legislation is, inter alia, that the differences in development of remuneration between directors of large companies and the average employee are getting increasingly larger. According to the government, the development of balanced remuneration ratios within companies is served by more openness, so that eventually a clear link can be established between remuneration and long-term value creation. In addition, disproportionate differences in remuneration may negatively affect the labour relations within companies, according to the Minister.

Although the decision-making process on the level of remuneration of directors will in principle remain to be reserved for the shareholder(s), the reporting on remuneration ratios within the company may start a debate. In addition, in that case, the works council will not need to put this sensitive issue on the agenda itself. On the basis of the existing obligation to disclose information, the works council is already entitled to the information in this regard, which information may be discussed in the consultation meeting. This bill will make such a meeting mandatory.

The Advisory Division of the Council of State questions the effectiveness of this measure. It wonders what the nature and the extent of the problem is and whether the proposed change in legislation will have any added value, since a debate on remuneration ratios can already be held on the basis of the existing powers of the works council. It is suspected that such a debate is currently not taking place because of the hierarchical relationship between directors and employees. The legislative proposal will, however, not change such hierarchical relationships.

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