Quality as the Source of Appropriate Remuneration Policy

ANALYSIS REPORT Quality as the Source of an Appropriate Remuneration Policy

In Brief – Audit firms are responsible for an appropriate remuneration policy with sufficient performance incentives to ensure the quality of statutory audits. Research by the AFM into the design and application of this at OOB (Public Interest Entity) audit firms shows that most audit firms have a remuneration policy developed to a sufficient or good standard, and there are good examples of monitoring and evaluating this. Furthermore, our research shows that the NBA measures regarding profit-independent remuneration for executives and the claw-back regulation have not yet been implemented everywhere. The AFM encourages audit firms to work with the observations and recommendations in this report and to further strengthen the quality-oriented culture.

MARCH | 2026

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Table of Contents Introduction 3 Reason and Purpose of the Research 3 Results and Good Practice Examples 4 Three Recommendations for Audit Firms 5 Recommendation 1: Take further steps in monitoring and evaluating the remuneration policy 6 Recommendation 2: Increase transparency regarding the role of quality in the remuneration policy 7 Recommendation 3: Make quality demonstrably decisive in variable remuneration 9 Profit-independent remuneration for executives and claw-back regulation are not implemented everywhere 10 Appendix: Research Methodology with Description of Maturity Levels 11

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Introduction Reason and Purpose of the Research Audit firms must have an appropriate remuneration policy that contains sufficient performance incentives to ensure the quality of statutory audits.1 In practice, audit firms use, among other things, the measures to improve the quality and independence of the audit, as described by the NBA in 2014 in the report 'In the Public Interest' (NBA measures), to give shape to this open norm in the design of their remuneration policy. The NBA measures regarding an appropriate remuneration policy describe that the quality of statutory audits plays an important role in the appointment, assessment, remuneration, and sanctioning of external auditors. The goal of this is to further stimulate a culture in which the sustainable guarantee of the quality of statutory audits is realized.

To gain more insight into the performance incentives to ensure the quality of statutory audits, the AFM conducted research in 2025 into the remuneration policy at all six OOB audit firms.2 We investigated to what extent the audit firms had implemented the NBA measures in their remuneration policy. For this purpose, we received a large number of policy documents per audit firm. We explored the application of the remuneration policy using a validated self-assessment. Based on expectations, maturity levels were estimated and substantiated. See Table 1 for a description of the expectations and the appendix for more background information on this research methodology.

Table 1: Description of Expectations Expectation Directed at Description 1 Audit Firm The organization ensures the quality of statutory audits when appointing external auditors.3 2 Audit Firm The organization ensures the quality of statutory audits when assessing, remunerating, and sanctioning external auditors. 3 Supervisory Board The supervisory board takes responsibility for ensuring the quality of statutory audits when appointing external auditors. 4 Supervisory Board The supervisory board takes responsibility for ensuring the quality of statutory audits when assessing, remunerating, and sanctioning executives.4

1 Article 18b, paragraph 1, Act on Supervision of Audit Firms. 2 OOB audit firms are audit firms with a license that also extends to performing statutory audits at public interest entities (OOBs). 3 By external auditors, we mean in this research: equity partners, salary partners, and directors who work for or are affiliated with the audit firm and are responsible for performing statutory audits. 4 By executives, we mean in this research exclusively those with an RA/AA title.

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The goal of this research is to stimulate audit firms to permanently use the remuneration policy as a driver of a quality-oriented culture. Therefore, the AFM held discussions with the management and supervisory boards of audit firms regarding the remuneration policy and possibilities for improvement. At the conclusion of the research, we shared our observations in an individual feedback letter and a discussion per organization. Thereafter, we asked each audit firm to respond with a reflection letter and indicate which improvements they wish to implement in the remuneration policy. We will take follow-up on this into account in our ongoing supervision. With this report, we share the main results of our research with the sector. Based on this, we have formulated three recommendations for audit firms to stimulate the quality of statutory audits with the remuneration policy.

Results and Good Practice Examples Most audit firms have implemented the relevant NBA measures and score an average of 'monitored' in the validated self-assessment. The relevant NBA measures are reflected in the design of the remuneration policy in most cases. This does not yet apply to the NBA measures regarding profit-independent remuneration for executives and the claw-back regulation.5 Furthermore, monitoring takes place to gain insight into whether the policy is actually executed as intended, whether monitoring is discussed at the appropriate level within the organization, and whether adjustments are made based on the results. We observe that the management of audit firms generally pays more attention to monitoring and/or evaluating the remuneration policy than the supervisory board. We see room for improvement at audit firms in ensuring the quality of statutory audits through the remuneration policy.

Good practice examples of monitored and evaluated remuneration policies are in-depth and focused on quality improvement. A good example is that the broad lines of the remuneration policy are monitored and evaluated annually, with an in-depth evaluation every few years. The supervisory board plays an important role in this, for example by proposing topics for these in-depth evaluations to the management. Furthermore, we see good examples of monitoring and evaluation that are directly or indirectly focused on better ensuring the quality of statutory audits. Here, it is consistently recorded what the reason or trigger was for the adjustment in the policy and what effect is intended with it. For instance, several audit firms have the intention to structurally monitor the actual effects of changes in the remuneration policy and evaluate them periodically.

In the appointment process of new external auditors, we see many good safeguards focused on quality. For example, the condition that a substantial number of technical hours have been completed with a positive assessment. Also, multiple file reviews with a positive assessment of statutory audits in which the candidate played a substantial role. And the testing of competencies, such as a professionally critical attitude and a straight spine. Furthermore, we see that the supervisory board is often actively involved in assessing and approving appointments to external auditors. Finally, we see as a good practice example in the appointment process that audit firms and supervisory boards pay attention to diversity within the partner group.

Good practice examples in the appointment process of new external auditors take into account the development potential of candidates. For example, by having candidates reflect on difficult situations with the audit team or the audit client. Also, by mentioning both the strong points and development points of the candidate in the recommendation letter from the supervisor. Another good practice example is that audit firms distinguish between (a) an initial appointment as external auditor – without OOB accreditation – and (b) a later OOB accreditation or appointment where statutory audits at OOBs may also be performed. For this later appointment, a condition can be set that the candidate has at least one or two years of experience as second accountant on statutory audits at OOBs.

Three Recommendations for Audit Firms Based on the results of this research, the AFM sees three possibilities to stimulate the quality of statutory audits with the remuneration policy:

1. Take further steps in monitoring and evaluating the remuneration policy.
2. Increase transparency regarding the role of quality in the remuneration policy.
3. Make quality demonstrably decisive in variable remuneration. We elaborate on these recommendations below.

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Recommendation 1: Take further steps in monitoring and evaluating the remuneration policy The following observations show that audit firms have growth potential to further develop the monitoring and evaluation of the remuneration policy. By doing so, they can investigate and reduce vulnerabilities in their remuneration policy, and attention to the quality of statutory audits can further increase.

The AFM sees variation in the maturity levels of the remuneration policy per audit firm. The maturity levels vary from 'designed' (policy is present) to 'evaluated' (the desired and undesired effects of the applied policy are evaluated – with a view to securing quality). This shows that there is growth potential for audit firms to further develop in this regard. For some audit firms, monitoring can (still) be better organized. Other audit firms that already have monitoring of their remuneration policy in good order can further develop in deepening evaluations of their remuneration policy, for example via impact measurements. This growth can make an important contribution to creating and maintaining a culture to ensure the quality of statutory audits.

The management of audit firms generally has more attention for monitoring and/or evaluating the remuneration policy than the supervisory board. This difference is partly explained by the fact that the supervisory board stands somewhat further away and has a different role than the management. But at the same time, we also see good examples where the supervisory board takes an active role in (stimulating) monitoring and evaluating the remuneration policy.

The supervisory board has an important role in stimulating and further developing an appropriate remuneration policy. Strengthening this role can be done in multiple ways. For example, through the monitoring role that the supervisory board has in (approving) the remuneration policy. Or through its direct involvement in approving appointments of external auditors. Or through its role in appointing and assessing executives. Furthermore, the supervisory board can make proposals to have parts of the remuneration policy deeply (let) evaluated on their actual effects in practice. By using the results of these evaluations to adjust the remuneration policy, a structural process of monitoring and evaluation can be established. Here, it is important that the supervisory board continues to place a culture centered on ensuring the quality of statutory audits at the core. Furthermore, it can improve the monitoring of the remuneration policy by increasing transparency in various areas (see Recommendation 2).

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Recommendation 2: Increase transparency regarding the role of quality in the remuneration policy The following observations show that more transparency regarding the role of quality in the remuneration policy of partners and executives can stimulate the quality of statutory audits.

Audit firms use different systems to distribute the organization's profit among equity partners. There are audit firms with an egalitarian/partitive profit-sharing system, where equity partners share in the profit equally based on a seniority system. Additionally, there are audit firms that work with a different system. Thereby, equity partners are divided into different groups based on roles and responsibilities, with different profit rights.

Equity partners with a larger and more complex portfolio, more experience, or a leadership position, come into a group with higher profit rights. The height of the profit share of equity partners in this system depends on the group into which they are classified and the number of years in that group. But also on the points achieved based on different performance indicators, including quality. Finally, there are audit firms that have a combination of both profit-sharing systems, where the basis of profit distribution is egalitarian and differentiation into groups is only possible after several years.

Increasing the transparency of the classification of equity partners into groups can contribute to stimulating a quality-oriented culture. A good practice example is that the criteria for the classification of equity partners into groups are linked to the strategic long-term goals of the organization. The quality of statutory audits is an important part of this. This makes it explicitly visible that quality is an important foundation for assessing and remunerating equity partners. This working method also gives rise to discussions with the partner group about the role of quality in the organization's remuneration policy. But also to hold a conversation with each partner about his or her contribution to the organization's quality objectives.

The supervisory board can give an important impetus to more transparency regarding the classification of equity partners into groups. For example, by putting this topic on the agenda and further elaborating it in an in-depth evaluation. This evaluation can relate to the criteria and substantiation for dividing partners into different groups, where their contribution to quality is central. This creates transparency towards the equity partners regarding the classification into groups on the one hand, and on the other hand, it gives more possibilities to monitor the composition and development of the partner group. The supervisory board receives an important role in the distribution of profits to shareholders with the amended Wta.

6 More transparency regarding the classification of equity partners into groups and their contribution to the quality of statutory audits supports the supervisory board in this new task. Furthermore, it promotes the quality objectives of the organization. This is because the quality of statutory audits comes to stand more centrally in the remuneration policy.

6 With the yet-to-enter-into-force Amendment Act on the Accounting Sector, a new paragraph 8 is added to Article 22a of the Act on Supervision of Audit Firms. Part of this is that a proposal for profit distribution is subject to approval by the supervisory body. Amendment Act on the Accounting Sector (Stb. 2025, 341).

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Furthermore, the supervisory board can ensure more internal transparency in the performance indicators of executives. We see that executives often formulate objectives based on a self-assessment, after which the supervisory board provides input. It is not always clear what the strategic long-term goals of executives are and what share the quality of statutory audits has in this. More internal transparency regarding this can promote monitoring and help to further strengthen the quality-oriented culture of the organization.

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Recommendation 3: Make quality demonstrably decisive in variable remuneration The following observations show that there are possibilities to make quality demonstrably decisive in the variable remuneration of partners and directors.

The quality of statutory audits is an important performance indicator for an appropriate remuneration policy. This creates possibilities to monitor quality and realize a sustainable guarantee of it within the organization. It is important that audit firms use this monitoring to stimulate a learning attitude. For example, by assessing the learning attitude of the external auditor after a negative outcome of a file review and sharing these lessons more broadly within the organization.

In the assessment and remuneration, quality is not always demonstrably decisive. The most important part of the variable remuneration of employees in the audit practice must, according to NBA measure 3.1, be determined by role, responsibility, and the quality of statutory audits. We see that quality is important in the assessment of external auditors and that the right to a bonus is completely or partially forfeited if the quality of statutory audits lags behind. Sometimes it takes a long time before an insufficient file assessment works through into the variable remuneration. Furthermore, it is not always demonstrable that the quality-related indicators take precedence, for example based on weighting criteria with percentages.

Good practice examples place quality behaviors at the center. The AFM sees that it is possible to make quality-related performance indicators measurably decisive in the assessment of directors and salary partners, for example by assigning them a weight of at least 60%.

Furthermore, the bonus is determined by at least 60% quality-oriented criteria and by a maximum of 40% by other performance indicators. Another good practice example is explicitly describing what the organization understands by quality behaviors. This gives explicit attention to desired behavior focused on the quality of statutory audits.

For equity partners, quality is an important factor, but rarely demonstrably decisive. According to NBA measure 3.4, for these partners, the most important part of the variable profit distribution is based on quality-related criteria. In practice, however, this is often difficult to establish, because these criteria are mostly distributed over multiple groups and there are no clear agreements made on compensating for the different performance indicators. Quality is often considered a hygiene factor, meaning it must be in order, but is rarely used as a motivating factor. A good practice example to address this point is adjusting the remuneration policy such that the quality-oriented indicators are decisive in the assessment and variable remuneration of equity partners.

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Profit-independent remuneration for executives and claw-back regulation are not implemented everywhere Generally, audit firms have taken up and implemented the relevant NBA measures in their remuneration policy. However, this does not apply to the profit-independent remuneration of executives and the claw-back regulation.7

The profit-independent remuneration for executives is not implemented everywhere, which creates an unequal practice between audit firms. Executives of the Dutch top holding of an OOB audit firm must, according to NBA measure 3.3, receive a remuneration that is not dependent on the profit of the organization in the relevant year (hereinafter: profit-independent remuneration). The aim is to reduce the incentive to let short-term goals, such as profit, prevail over the long-term goals that fit the societal function of the organization, such as the quality of statutory audits. Most audit firms have introduced the profit-independent remuneration. Some audit firms also apply this remuneration to the executives of the audit firm, in line with the objective.

The claw-back regulation is also not implemented everywhere and is rarely applied. This regulation concerns the reservation of a part of the profit rights for a period of six years, which lapses if an equity partner has acted culpably in issuing an incorrect statement resulting in societal damage. With this, the claw-back regulation has an important preventive incentive to ensure the quality of statutory audits. Besides this good performance incentive, the claw-back regulation can also have less desirable effects, such as avoiding riskier audit clients. Most OOB audit firms have introduced this regulation, but few have applied it. We also see variation in the scope of the claw-back regulation, which creates a difference in performance incentives between audit firms.

7 See NBA measure 3.3 for profit-independent remuneration and NBA measure 3.5 for the claw-back regulation. These two measures only apply to OOB audit firms.

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Appendix: Research Methodology with Description of Maturity Levels The validated self-assessment is a method for supervision of open norms using expectations and maturity levels. 8 This method is intended to stimulate professionalization, without the AFM prescribing exactly what must happen. Based on the applicable legislation, we have drawn up four expectations (see Table 1). These expectations concern the securing of the quality of statutory audits with the remuneration policy. There are two expectations for the audit firm and two for the supervisory board. Each audit firm assessed its maturity on each of these expectations itself, where it could choose from the levels 'ad hoc', 'documented', 'designed', 'monitored', 'evaluated'.