A Land Where CEOs Have Stopped Smiling
The Netherlands now seems to have a new claim to fame. The land of dikes, tulips, and Vermeer may now host the world’s unhappiest corporate CEOs. What’s making the Dutch execs so unhappy? These captains of industry run some of the world’s biggest companies. Yet they're taking home just a quarter of what their counterparts in the United States are making.
The worst part of all: The Dutch people think Dutch executives are making too much. And the Dutch people aren’t just complaining about executive pay. They’re pressing lawmakers to do something. Amazingly, lawmakers are.
The Dutch parliament, observers believe, will shortly enact into law legislation that will heavily tax American-style executive windfalls — and maybe set some global precedents.
Other European nations, news reports indicate, are already taking notice. Earlier this month, in Brussels, European Union finance ministers “applauded” Wouter Bos, the Dutch finance minister who’s leading his nation’s charge against executive excess. The chair of the Brussels session, Luxembourg prime minister Jean-Claude Juncker, called the “bloated payouts” going to corporate executives “a social scourge.”
The legislation that Bos is pushing in the Netherlands will impose a 30 percent tax on all executive severance packages that run over 500,000 euros, the equivalent of almost $800,000. Last year, the CEO of the top Dutch baby food maker exited his executive suite with $124 million, a windfall that outraged the Dutch public.
Before that landmark payout, executive pay reformers in the Netherlands had been content to press corporate boards to disclose more info on what they were paying their top execs. That disclosure, they figured, would help shareholders blow the whistle on extraordinary executive earnings.
But this sunshine strategy hasn’t worked, in the Netherlands and other European nations as well, and angry lawmakers are looking at legislation that specifically targets executive excess.
The Dutch are leading the way. The executive pay reforms now pending in the Netherlands include, beside the hefty new tax on severance windfalls, one proposal that would limit bonuses and stock options to 100 percent of an executive’s pay and another that would raise the required employer contribution to company pension funds by 15 percent wherever companies hand executives over $800,000 in annual pension benefits.
What’s the philosophy behind these reforms? Notes Dutch finance minister Bos, who also leads the Dutch Labor Party: “I believe cohesion in society is not served by inexplicable inequalities.”
In Germany, the Social Democratic Party, a junior partner in the current government, is calling for a $1 million annual limit on how much companies can deduct off their corporate taxes for executive compensation.
“We must consider placing a larger share of the tax burden on the income that grows the most quickly – and often without a great deal of effort,” explains Karl Lauterbach, a leading Social Democratic Party lawmaker.
The European Union parliament, meanwhile, is reportedly “eyeing curbs on stock options, bonuses, and golden parachutes,” a “clear sign,” says one British daily, “that the EU noose is tightening” on bankers, private equity funds, and “corporate elites that have enjoyed light-touch regulation.”
This upsurge in tax-the-rich action, new transnational polling documents, reflects a widespread public apprehension about concentrated wealth and income. In five European countries, at least 76 percent of the public feel that the gap between the rich and everyone else has grown too wide.
“Income inequality has emerged as a highly contentious political issue in many countries,” the British Financial Times, the co-sponsor of this latest polling, observed last week, “as the latest wave of globalization has created a ‘superclass’ of rich people.”
The Dutch executive pay reform proposals have Europe’s “superclass” — and its business press apologists — absolutely aghast.
“We should not accept state interference when it comes to our pay,” UK economic columnist Damian Reece harrumphed earlier this month. “The precedent some in Europe, like the Dutch, want to set is intolerable. A minimum wage is one thing, a maximum wage is quite another.”
But don’t expect the pressure for “state interference” to ease anytime soon. Europeans have become too accustomed to living in relatively equal societies to tolerate American-style executive pay.
That became clear at last month’s annual shareholder meeting of the Royal Bank of Scotland. RBS last year bought out a Dutch bank and then handed that bank’s departing CEO almost $50 million in goodbye pay. One shareholder at last month's annual meeting demanded — to loud applause — that the executives on the RBS board “reconsider” the company’s “entire remuneration policy.”
“You are being paid as if you are superhuman,” the shareholder angrily noted, “but you are not.”