Dutch management incentive plans


The importance of a holistic approach to management incentive design 

How Dutch legislative proposals will impact the management incentive design practice

The future of Dutch management incentive plans (“MIP”) has been the subject of some recent discussions as a consequence of a shift in the political landscape. Historically there was a clear difference between an investment plan and a remuneration plan from a commercial, legal and tax perspective. This year the Dutch government has presented plans to narrow the treatment of an equity plan and a remuneration plan from a Dutch tax perspective. In this contribution we will share our holistic view on how these legislative proposals will impact the management incentive design practice.

The Dutch government announced a two-tier tax rate in box 2 as of 2024. The current flat tax rate of 26.9% will then be replaced by a two-tier system with a tax rate of 24.5% for proceeds up to EUR 67.000 and a tax rate of 31% for proceeds above this threshold. This amendment will likely result in a higher effective tax rate for current equity structures, as many management equity plans are subject to box 2 taxation. A higher tax rate for box 3 investments is also expected in the near future. Thus, it is clear that there is increased focus on taxation on capital.

It has been argued that remuneration plans such as a bonus may become more popular because of the increased focus on taxation on capital. However, in our view it is too simplistic of an approach to argue that incentive design is a purely fiscal driven process. The set-up and implementation of a MIP should be sound from a fiscal perspective but must also focus on the commercial terms, the accounting consequences and most importantly on aligning the interests of management and the other share- and stakeholders by having ‘skin in the game’ with their investment in the equity plan.


It is key to design the right plan, that provides a full alignment of goals among all stakeholders.

A bonus structure overlooks the investment character of a MIP and is too narrowly focused on remunerating the manager. While it could be argued that in some situations a bonus structure may result in a lower effective tax rate, it will also remove the manager’s downside risk and will reduce the retention and alignment character of an equity investment. A co-investment by management may also reduce unwarranted risk-taking by management as their own investments are at stake for the longer term.

Besides the commercial aspects of a MIP, the accounting treatment should also be considered. A bonus will result in liability accounting while an equity plan is settled through equity accounting. Liability accounting has a direct impact on the P/L account. Furthermore, the company should also be aware that a bonus structure could trigger the Dutch excessive severance levy regulations for significant earners within the company. Consequently, a significant tax burden of 75% could fall upon the company in case an employment agreement has ceased and the former employee has received (bonus) proceeds which are considered excessive.

In our experience the set-up of a management incentive plan should be considered from a holistic view and is therefore not solely tax driven. The announcement of a two-tier box 2 tax rate will provide an additional variable to the considerations for incentive design. We expect that from a holistic approach the co-investment plans will remain market practice. However, the new box 2 system will give some additional considerations to tailor the MIP to the specific needs of the existing shareholders and management.

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