28 Adjustment as a remedy

An effective power to adjust in rough financial waters dovetails with the pay-for-responsibility concept. The clash between the pacta sunt servanda principle and the desire to counter excessive remuneration means that the task of designing an effective power to adjust bonuses in retrospect is not an easy one. Nevertheless, there seem to be several possibilities that could lead to a more effective power to adjust.

My preference would be to encourage supervisory boards to develop an adjustment policy as part of the remuneration policy. In this case, the supervisory board should include a power to adjust in the agreement with the executive. If the circumstances regarding implementation of this power to adjust were also to be explicitly set out (and be made public in line with best practice provision 3.4.2 of the 2016 Code), the chances of it actually being used would increase. Such circumstances would include those related to the financial situation of the company as well as those concerning certain undesirable conducts such as fraud.

It should be noted that the 2008 Code included such a best practice provision. This provision was intended to encourage supervisory boards to include an ultimum remedium (last resort) power in the agreement with the executive. This best practice provision is no longer included in the 2016 Code. The reason given for scrapping this provision is the overlap with the legal regulation in Art. 2:135.6 DCC. In my opinion, the two regulations do not conflict and such a best practice provision is far more useful than the current legal regulation. I believe it would be a good idea to include it again in an adapted form in the Code. If the legal-political choice falls on a more forceful regulation, then introducing a legal provision making drawing up an adjustment policy and including the power to adjust in the agreement with the executive compulsory would be the obvious path to take.

An alternative option would be to make explicit exactly when payment of a bonus is in principle unacceptable on the basis of reasonableness and fairness. The current law is not suitable for this, but the Code could offer a solution. By indicating which circumstances would require adaptation to be permitted, the courts would have something concrete to work with when fleshing out the standard. It would also be clear to the supervisory board and the executives when the power to adjust could be used. Taking the current regulation as a starting point, the chances of a more effective implementation would increase.