Despite state support, still a bonus

March 21, 2021 by No Comments

The severance pay has been paid: EUR 503,011.11 gross. Dave Vander Heyde, former chairman of shipbuilder Royal IHC, received the amount from his former employer after his forced departure at the end of April 2020. Remarkable, because the ailing IHC was then just saved from bankruptcy by the Dutch state. And that had stipulated at IHC as a condition: no severance pay for Vander Heyde.

But the judge decided otherwise, reported The Financial Times Thursday. The judgment of the subdistrict court in Amsterdam, published on Wednesday, which was pronounced in December, states that IHC was obliged to pay the severance pay, despite the agreement between the state and IHC.

According to the judge, the employment contract between IHC and Vander Heyde takes precedence over the agreements between the company and the state. The employment contract stated that the CEO would receive a gross annual salary in the event of forced departure. The judge regards the state as „a third party [partij]in this employment contract. And a third party may not simply forbid paying severance pay. “Even the state cannot do that,” said the judge.

In the lawsuit he initiated, Vander Heyde claimed a higher amount: more than 1.5 million euros, partly because of his certificates in IHC, which have become worthless. The judge rejected that claim.

You cannot prohibit severance pay as a third party – not even the state

Yet the moral loser of the case is mainly the government, even though it was not formally a party to the cantonal court in Amsterdam. Former minister Eric Wiebes (Economic Affairs and Climate, VVD) informed the House of Representatives in a letter on 30 April, just before the appointment of new directors at IHC: “The current CEO is leaving without transition payment”. After parliamentary questions from the SP in June, Wiebes confirmed once again: “the departed CEO has not received a transition payment”. That was premature in hindsight. A spokesperson for the Ministry of EZK emailed on Thursday: “The final decision on the conditions of his departure is (…) up to the judge.”

Hans van Ees, professor of corporate governance and institutions in Groningen, finds it “not surprising” that the state had to step down. “Agreements in employment contracts, in this case about compensation to directors, apply independently of agreements made by a company with third parties. From the point of view of the legal protection of employees, this ruling is logical and justified,” says Van Ees on the phone.

It is not the first time that the conditions set by the state for corona emergency support to companies have come under pressure. IHC was rescued with a package of 377 million euros in credit guarantees from the cabinet and banks, KLM received loans and loan guarantees from the state of 3.4 billion. Shortly after the rescue of IHC, the cabinet set up a ‘framework for consideration’ for the rescue of crucial companies in times of crisis. The concept of ‘reciprocity’ figures in this: companies must meet conditions set by the state. State aid ‘is generally not compatible’ with the payment of dividends, bonuses, share buybacks and generous severance pay, it states. Specific agreements are made with each company. At KLM and IHC, a ‘state agent’ monitored the company on behalf of the government.

Not always his way

However, the state does not always get what it wants. For example, it required KLM to save 15 percent on ‘controllable costs’. Only after great pressure did KLM pilots agree to long-term wage moderation in November.

Because it concerns taxpayers’ money, the House of Representatives is often critical of how rescued companies deal with the aid. The SP wanted to know in June whether the IHC directors should not absorb some of the blows. And in February there was a fuss about KLM’s plans to strengthen its position in the package travel market by acquiring a ticket company. Other providers, such as Corendon and Sunweb, thought that competition was unfair. The ChristenUnie asked parliamentary questions about it, which have still not been answered.

The state owns just under 6 percent of the shares within KLM, while the state has no interest in IHC. Professor Van Ees points out that last year the state bought neither KLM nor IHC (extra) shares. This has consequences: “The government can now make agreements with the rescued companies, but as a shareholder the state can really exert its influence over the remuneration policy and the strategy of the company”.