The Dutch “Gentleman’s Agreement” on Executive Compensation

I’ve only ever met one finance minister, the Netherlands’ Wouter Bos, but fortunately he seems to be doing a good job, cleverly striking a gentleman’s agreement with bailed-out Dutch banks to ensure the political sustainability of the Dutch government’s approach to the financial crisis. You can see the herenakoord here, but you almost certainly don’t read Dutch. Fortunately, Justin Fox translated some key points:

* During the credit crisis, salary increases at the top of a company can’t be any bigger than those for the rest of the personnel.

* At companies getting government support, the managing board [the top 5–10 executives, usually] won’t get any variable pay [a.k.a. bonuses] for 2009.

* At government-supported companies, there should also be the greatest possible reticence regarding variable pay for other senior managers in 2009 and until a new compensation policy has been determined.


* As part of a more durable and moderate compensation policy, golden parachutes will not exceed one year’s salary and long-term variable compensation will play a greater role relative to short-term variable pay.

Apparently Bos discussed this with Tim Geithner to some extent. But Geithner doesn’t quite seem to have been able to pull anything equivalent off. Instead, as Fox points out, we’re engaged in a tawdry cycle of congress getting into a populist dudgeon, but then loopholes are left everyplace and at least some elements of the executive branch are helping firms find ways to exploit the loopholes. In theory the upside of things like Larry Summers on such good terms with key financial firms would be the ability to do something like this. In practice, that doesn’t really seem to be the case thus far.