A Bank must have a Board-approved compensation system that supports sound corporate governance and risk management, including appropriate incentives aligned with prudent risk-taking. Performance standards must be consistent with the long-term sustainability and financial soundness of the Bank.
The Board together with its compensation committee must approve the compensation of Senior Management and oversee the development and operation of compensation policies, systems and related control processes.
Compensation outcomes must be symmetric with risk outcomes. Compensation payout schedules must be sensitive to the time horizon of risks through arrangements that defer a sufficiently large portion of the compensation until risk outcomes become better known. The compensation framework must provide for mechanisms to adjust variable compensation, including through inyear adjustment, and malus or clawback arrangements, which can reduce variable compensation after it is awarded or paid.
Members of the Board must be compensated only with fixed compensation comprising the payment of an annual fixed amount and the reimbursement of directly related costs to the discharge of their responsibilities. Bonus or any incentive-based mechanisms based on the performance of the Bank must be excluded.
The compensation of Staff in the control functions of risk management, compliance and internal audit must be predominantly fixed to reflect the nature of their responsibilities and determined independently of the performance of the Bank. The variable compensation must be based on performance targets related to their functions and independent of the lines of business they monitor and control.
For Senior Management and Material Risk Takers, a proportion of the total compensation must be performance-based. Provisions must be included so that compensation can be reduced or reversed based on realized risks and violations of laws, Regulations, codes of conduct or other policies, before compensation vests.
The annual individual bonus for Senior Management and Material Risk Takers must not exceed 100% of the fixed proportion of his/her total compensation. A higher bonus of up to 150% would require approval by the Board. A bonus up to 200% would require approval by the General Assembly of the Bank.
The annual total bonus for all Staff must not exceed 5% of the Bank’s net profit. A higher bonus would require approval by the General Assembly of the Bank before disbursement, along with an attestation signed by all Members of the Board that the Bank is in compliance with all the Regulations issued by the Central Bank.