The salaries and allowances of CEOs of commercial banks, development banks, finance companies, and microfinance institutions should be determined only based on the recommendations of a subcommittee formed by the board of directors.
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The regulatory body, the Nepal Rastra Bank, has tightened the salary and allowances and other facilities of the Chief Executive Officers (CEOs) of banks and financial institutions. The National Bank has restricted the salary and allowances and other facilities of the CEO by issuing the 'Guidelines on Salary, Allowances and Other Facilities of the Chief Executive Officers of Banks and Financial Institutions, 2083'.
The total remuneration received by the CEO has been divided into three types: fixed salary and allowances, performance-based remuneration and other facilities. According to the new guidelines, the salary and allowances of the CEOs of commercial banks, development banks, finance companies and microfinance companies will have to be determined only on the basis of the recommendation of the board of directors of a subcommittee.
The guidelines state that the CEO's qualifications and experience, as well as the bank's return on capital, loan, investment and deposit size, operating profit, future business growth potential and risk situation should also be the basis for determining remuneration.
Guidelines have been issued to ensure uniformity in determining the salary and allowances and other financial benefits of CEOs in banks and financial institutions, said Guru Prasad Poudel, spokesperson of the National Bank.
‘The guidelines have been issued with the aim of helping to promote risk management and institutional good governance,’ he said. ‘The salary and allowances and other financial benefits of CEOs have been determined clearly and objectively, and the remuneration structure has been linked to the financial condition, risk level, performance, regulatory compliance and long-term stability of the institution, making it scientific, transparent and accountable.’
Whose salary is what?
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According to the new system, now the salary and allowance of the CEO of a commercial bank will have to be determined at a maximum of 0.015 percent of the total assets of the previous year or an average of 2 percent of the employee expenses of the previous three fiscal years, whichever is lower. Earlier, the CEO's salary and allowance was a maximum of 0.025 percent of the total assets of the previous year.
‘In the case of national-level development banks, the limit is set at 0.020 percent of total assets or an average of 3 percent of employee expenses, in the case of national-level finance companies, the limit is set at 0.050 percent of total assets or an average of 3 percent of employee expenses, and in the case of national-level retail banks, the limit is set at 0.10 percent of total assets or an average of 3 percent of employee expenses,’ the guidelines state.
The guidelines provide for additional benefits to the CEO based on performance. However, the guidelines state that such benefits can be given up to 20 percent of the annual salary and allowances. This means that more benefits cannot be given just because performance is good.
The guidelines state that performance should be evaluated based on indicators such as return on assets and capital, profitability, capital fund ratio, non-performing loans, liquidity, risk management, regulatory compliance, customer satisfaction, and service quality.
The guidelines allow a maximum of 0.50 percent of salary and allowances for expenses such as professional membership, telephone and internet, newspapers, etc. The guidelines stipulate that banks and financial institutions should review the salary difference between their own assistants (junior assistants) and chief executive officers.
The guidelines also specify the limits of the benefits that CEOs will receive, including one mobile phone and one laptop as determined by the salary and allowances and other benefits recommendation committee.
‘A vehicle will be provided as determined by the recommendation committee.’ This provision will not prevent the continuation of the vehicle currently being used as per the existing agreement,’ the guidelines state, ‘The CEO will not be provided with another vehicle during his service period (even if reappointed).’
However, the guidelines state that the new provision will not apply to organizations declared problematic by the National Bank, organizations undergoing restructuring with the help of international donor agencies or the Government of Nepal, organizations fully or partially owned by the government, organizations with more than 20 percent foreign investment in paid-up capital, and CEOs working in branches of foreign banks in Nepal.
