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Executive remuneration: The options to help attract and retain key personnel

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What incentives can companies provide in attempting to secure commitment from high-level employees? Arthur Gude and Louis de Vries of Grant Thornton consider the alternatives from a Dutch perspective and emphasise the importance of considering the tax implications.


During an M&A process and with a tight labour market, companies are forced to think how they can attract, reward, and retain their executives and key personnel and achieve strong commitment for the longer term. Granting equity-based compensation or participation in the company may be a possibility. In this article, some alternatives are discussed.

Shares or depositary receipts

Instead of cash, a company can issue shares to their executives, making the executive participate in the value development of the company. The executive only receives a cash reward upon payment of a dividend or the sale of the company. When a company wants to let their executives share in the profits without transferring any voting rights, one can consider depositary receipts for shares.

In principle, equity-based compensation is considered wages subject to Dutch wage withholding tax. Depending on the terms and conditions of the plan, an additional tax charge could arise; for example, lucrative interest, substantial interest, and/or income from savings and investments.

Stock options

With stock options, the executive is given the right to buy shares in the company at a specified time at a pre-agreed price. The executive is subject to Dutch wage withholding tax at the time of exercising/disposing of the option on the difference between the market value of the shares and what the executive has paid.

If the shares are not (yet) tradable at the time of disposal, this can cause a problem. After the moment of exercise/disposal, the shares are in principle part of the executive's savings and investments.

There is a proposal to change the Dutch taxable treatment of stock options so that the taxable moment is shifted from the moment of exercise to the moment when the acquired shares can be traded. The legislative proposal is expected to enter into force on January 1 2023.

Stock appreciation rights

With a stock appreciation right (SAR), the executive is given a right of action against the employer (not actual shares). The value development of the right of action is linked to the shares of the company.

The terms and conditions for granting and exercising the SAR should be determined in advance. Think of achieving certain objectives or continuing employment. The value of the shares of the company in which the executive participates is determined at the time of grant and exercise. The executive will receive a cash payment equal to the increase in value of the shares to which the SARs are linked between grant and exercise.

The SAR benefit is taxable wages for the executive at the moment of payment. A SAR payment may be deductible for Dutch corporate income tax purposes.

Bonus in cash and profit distribution

A company can grant a cash bonus with specific terms and conditions. When the remuneration is dependent on the company's results, there is profit sharing.

The remuneration is taxable wages for the executive. The bonus or profit sharing is deductible for Dutch corporate income tax purposes.

Profit-sharing certificates

An alternative opportunity is profit-sharing certificates. A profit-sharing certificate is an agreement between the company and the holder of the profit-sharing certificate. There are no legal restrictions on the design.

With a profit-sharing certificate, the executive is entitled to a certain portion of the profit and/or goodwill upon sale. The tax consequences of profit-sharing certificates for the executive are the same as when acquiring (depositary receipts for) shares.

Dutch tax consequences

The Dutch taxable treatment and valuation is important for payroll purposes. Moreover, there could be additional charges from a Dutch individual income tax perspective; for example, lucrative interest and substantial interest.

The valuation of the company plays a significant role when granting shares, depository receipts, and stock options. In practice, there are frequent discussions with the Dutch tax authorities about the valuation. The preparation of a valuation showing the fair market value of the company is recommended. Clarity can be obtained in advance by requesting a tax ruling.

Cross-border employment situations

In cross-border employment situations, the local legal, tax, and social security consequences in each jurisdiction should be considered. An executive could have a continued tax filing obligation.

It is important to review trailing tax liabilities and to ensure that the company and the executive are compliant with the legislation.


The most suitable plan will be different for every company depending on the objectives of the arrangement; for example:

  • Return on investment;

  • The influence on control;

  • Voting rights;

  • Transferring rights;

  • Leaver terms;

  • Tag-along, drag-along rights; and

  • What to do in the event of a sale of the company or a public offering.

It is recommended that the objectives and tax consequences and other formal steps are carefully considered; for example, drawing up separate shareholders’ agreements.

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