The illusion of employee participation in executive compensation

Formal involvement without real control

Executive compensation has long been a recurring topic of discussion in corporate law. This development stemmed, in part, from social and political unrest over excessive executive pay and income inequality.¹ Since the beginning of this century, works council rights regarding compensation policy have been expanded and enshrined in Book 2 of the Dutch Civil Code.

The authority to determine remuneration rests, in principle, with the general meeting or with the body designated for that purpose in the articles of association.² In the case of a public limited company (NV), this is done on the basis of a remuneration policy adopted by the general meeting.³ In contrast, the works council has rights to information and consultation under the Works Councils Act (Wet op de ondernemingsraden, hereinafter: WOR). In a public limited company, the works council also has a legally enshrined right to express an opinion regarding the remuneration policy.⁴ The question, however, is whether these powers extend beyond mere procedural involvement.

It is precisely this tension between formal participation and substantive influence that is the focus of this blog. The study examines the practical significance of the works council in determining executive compensation. The central question is whether the formal rights of the works council also lead to actual influence.

The limited influence of the works council on executive compensation under the WOR

The WOR contains various provisions relating to executive compensation. A key principle is the right to information. The employer must inform the works council at least once a year about the amount and content of the employment conditions and agreements for each group within the company, specifically including those of the management board.⁵ In addition, significant interim changes must also be shared with the works council.⁶

This ensures that the works council has access to relevant information regarding the compensation structure within the company. This is not without significance. After all, without information, employee participation is of little value. Nevertheless, it must be noted that the provision of information alone does not influence substantive decision-making. The works council is informed, but does not participate in the decision-making process.

In addition to the right to information, the WOR also establishes a duty to consult. The employer must engage in dialogue with the works council regarding the content and level of the employment conditions. The purpose of this obligation is to make this sensitive topic open for discussion.⁷

The discrepancy that arises is that, in many cases, the discussion partner is the same person as the statutory director. This means that the works council often speaks with the very person whose compensation, or that of fellow directors, is in fact the subject of the discussion. This creates a clear tension. The director is then not merely a discussion partner, but also a stakeholder. This makes the independence and effectiveness of the consultation less self-evident.

Furthermore, the works council has no right of consent regarding the specific amount of the remuneration. The legislature has limited the right of consent to remuneration and job evaluation systems, that is, to the structure and methodology of the remuneration. The specific amount of the remuneration itself falls outside this scope.⁸ Precisely for this reason, the influence of the works council under the WOR remains limited in practice. There is involvement, but no actual control.

The additional position in a public limited company

For public limited companies, an additional provision in Book 2 of the Dutch Civil Code applies. Under this provision, the works council has the right to express its opinion when the remuneration policy is established or amended.⁹ This right means that the works council may communicate its position in writing and may also explain that position at the general meeting.¹⁰ In addition, the works council has the right to be consulted on the compensation policy.¹¹

On paper, this appears to strengthen the position of the works council. The board must submit the proposal to the works council in a timely manner so that the council can express its opinion on the policy before the general meeting makes a decision. In doing so, the legislature aims, among other things, to build support and promote a more balanced income development.¹²

Nevertheless, it appears that the practical impact is limited in this case as well. First of all, making a substantive assessment of compensation policy requires expertise. Not every works council possesses the necessary knowledge to fully understand a complex compensation policy and to adopt a position on it that is firmly grounded in legal or financial arguments.¹³ This sometimes makes the actual value of the position relative.

In addition, the general meeting may disregard the works council’s position on the remuneration policy without providing a reason.¹⁴ Even the absence of a position does not affect the decision.¹⁵ Holtzer takes the position that this does not render the decision null and void or subject to annulment on any grounds, not even on grounds of reasonableness and fairness.¹⁶ The only avenue Holtzer sees for legal recourse in the event of a violation of the right to express a position is through the inquiry procedure.¹⁷

But here, too, one may ask to what extent this actually contributes to strengthening the position of the works council. An inquiry procedure is not granted lightly, and the mere fact that the works council’s position was disregarded will generally not be sufficient to grant a request for an inquiry. Furthermore, the works council itself can only submit a request for an inquiry if this is provided for in the articles of association of the legal entity.¹⁸

All in all, the works council’s right to express an opinion on remuneration policy in its current form appears to be primarily a formal instrument of participation, whose practical influence on decision-making at the general meeting remains limited.

Conclusion

The works council plays a clear but limited role in the remuneration of directors. Under the WOR, it has rights to information and consultation, but no right of consent regarding the amount of remuneration. For public limited companies, Book 2 of the Dutch Civil Code also provides a right to express an opinion on remuneration policy, but in practice that right too is primarily procedural in nature.

Taking stock of the situation, one quickly concludes that the works council’s role in executive compensation is primarily formal in nature. There is involvement, but no real control. Employee participation is therefore visible, but limited in substance. It is precisely this tension that makes the topic so interesting.

Literature and case law

^1. Parliamentary Papers II 2015/16, 34494, 3, p. 1.
^2. Art. 2:135(4) / 2:245(1) of the Dutch Civil Code.
^3. Art. 2:135(1) in conjunction with (4) of the Dutch Civil Code.
^4. Art. 2:135(2) of the Dutch Civil Code.
^5. Art. 31d(1) in conjunction with (2) of the WOR.
^6. Lokin, De bezoldiging van bestuurders van beursgenoteerde vennootschappen 2018/270.
^7. I. Zaal, ‘Medezeggenschap als middel tegen maatschappelijke onrust: medicijn of placebo?’, TRA 2015/89.
^8. Parliamentary Papers II 1975/76, 13 954, No. 3 (Explanatory Memorandum), pp. 35-36.
^9. Art. 2:135(2) of the Dutch Civil Code.
^10. Asser/Nieuwe Weme & Salemink 2-IIb 2025/101.
^11. Art. 2:135a(3) of the Dutch Civil Code.
^12. Lokin, De bezoldiging van bestuurders van beursgenoteerde vennootschappen 2018/362.
^13. M. Holtzer, ‘Standpuntbepaling van werknemers over het bezoldigingsbeleid: speak now or forever remain silent’, TRA 2012/15.
^14. M. Holtzer, ‘Standpuntbepaling van werknemers over het bezoldigingsbeleid: speak now or forever remain silent’, TRA 2012/15.
^15. M. Holtzer, ‘Het spreekrecht van de ondernemingsraad van de naamloze vennootschap bij belangrijke besluiten’, Ondernemingsrecht 2010/114.
^16. M. Holtzer, ‘Het spreekrecht van de ondernemingsraad van de naamloze vennootschap bij belangrijke besluiten’, Ondernemingsrecht 2010/114.
^17. M. Holtzer, ‘Het spreekrecht van de ondernemingsraad van de naamloze vennootschap bij belangrijke besluiten’, Ondernemingsrecht 2010/114.
^18. Article 2:346(1)(f) of the Dutch Civil Code.